Daniel B. Lowe v. Veris Gold USA, Inc. and Jerritt Canyon Gold, LLC and Matthew Varady v. Veris Gold USA, Inc. and Jerritt Canyon Gold, LLC

Plain-English summary

A bankruptcy court enjoined Daniel Lowe and Matthew Varady from pursuing successor-liability claims against the purchaser of Veris Gold's assets. The FMSHRC judge then dismissed both Mine Act discrimination cases on his own initiative, although neither side had requested dismissal. The Commission vacated those orders because the dismissals prematurely denied the claimants a free choice about how to respond and denied the respondents an opportunity to present a fully briefed dismissal motion. It remanded for briefing on the bankruptcy order's effect and reassigned the cases to a different judge to avoid any possible question about adjudicative neutrality. Commissioner Robert F. Cohen agreed with vacatur and reassignment but emphasized that the remand would need to address whether a free-and-clear bankruptcy sale necessarily defeats Mine Act successor liability. He noted that Mine Act discrimination rights serve a public safety function and cited decisions allowing labor-related successor claims despite bankruptcy sales.

Decision snapshot

• Governing authority: 30 U.S.C. §§ 801(a), 815(c)(2), and 815(c)(3)
• Outcome: The sua sponte dismissals were vacated, and both cases were remanded to the Chief Administrative Law Judge for reassignment and further proceedings.
• Key point: A judge must allow the parties to choose and brief their positions before dismissing Mine Act discrimination cases based on a bankruptcy injunction.

Full text (FMSHRC public release)

FEDERAL MINE SAFETY AND HEALTH REVIEW
COMMISSION

1331
PENNSYLVANIA AVENUE, NW, SUITE 520N

WASHINGTON,
DC 20004-1710

:

DANIEL B. LOWE                                         :        Docket
No. WEST 2014-614-DM

:                                                                       

v.                                              
 :       

:                                        

VERIS GOLD USA, INC., and                       :

JERRITT CANYON GOLD, LLC                   :

:

:       

:       

MATTHEW VARADY                                    :        Docket
No. WEST 2014-307-DM

:                                                                   

v.                                              
 :       

:                                        

VERIS GOLD USA, INC., and                       :

JERRITT CANYON GOLD, LLC                   :

BEFORE: Jordan, Chairman; Young, Cohen, and Althen,
Commissioners

ORDER

BY: Jordan, Chairman; Young, and Althen, Commissioners

By
Order dated September 2, 2016, the United States Bankruptcy Court for the
District of Nevada enjoined the above-identified Petitioners “from pursuing
their claims against the Purchaser, WBox 2014-1
Ltd., or any other
persons or entities
related to or associated with the Purchaser or WBox 2014-1 Ltd. . . . in any other Court or proceeding, including any administrative
proceeding.” Thereafter, by Orders dated October 25, 2016 and October 28, 2016,
respectively, the Administrative Law Judge dismissed the above-referenced cases.
No party in either proceeding sought dismissal prior to the Judge’s sua
sponte dismissals.

On November 23, 2016, Daniel B. Lowe
and Matthew Varady filed a petition for discretionary review, which we granted
on December 2, 2016.

The dismissal of the actions prior to
a motion by either party was premature. Such action deprived the petitioners of
an opportunity to decide freely upon their course of action and deprived the
respondents of an opportunity to file a fully briefed motion for dismissal. Based
upon the preemptory nature of the dismissal, we vacate the order of dismissals
and remand the cases for further proceedings.

Claimants may determine freely their response
to the Order of the Bankruptcy Court. Separately, respondents may choose to
file motions to dismiss or we would expect the Administrative Law Judge would
ask for expeditious briefing on the impact, if any, of the Bankruptcy Court’s Order
upon these cases. [1] In short, it is
likely the Administrative Law Judge will be in a position to make a fully considered
judgment about the status of the cases. [2]

Finally, we note that during a hearing held on
August 11, 2016, the Bankruptcy Court expressed a concern that email exchanges between
the Administrative Law Judge and the parties potentially implicated the
neutrality of the proceedings before the Administrative Law Judge. Proceedings
before the Commission must remain free of any possible question about the
neutrality of our adjudications. Therefore, without expressing any concurrence
with the Bankruptcy Court expressions, and only out of an abundance of caution,
we will remand the case to the Chief Administrative Law Judge for reassignment.

Accordingly, we hereby vacate the
dismissals and remand the consolidated cases to the Chief Administrative Law
Judge for action consistent with this Order.

/s/ Mary Lu Jordan

Mary
Lu Jordan, Chairman

/s/
Michael G. Young

Michael
G. Young, Commissioner

/s/
William I. Althen

William
I. Althen, Commissioner

Commissioner Cohen, concurring and dissenting:

While I agree with my colleagues
that it is appropriate to vacate the Judge’s dismissals in these matters for
the reasons discussed above, and I also agree that on remand the matter should
be reassigned to another Judge, I believe it is important to note that there is
a key issue that will need to be resolved in this matter going forward. Specifically,
the Judge assigned on remand will need to determine whether an operator can be
a successor-in-interest under Munsey v. Smitty Baker Coal Co. , 2 FMSHRC
3463 (Dec. 1980) when that operator purchased the predecessor’s assets “free
and clear of all liens, claims, and interests” pursuant to a bankruptcy court
sale order.

In light of the fact that this
issue is of the utmost importance in these proceedings, I am inclined to have
the Commission resolve it now. The observations which follow are preliminary,
without the benefit of briefing. They are solely my observations, and may or
may not reflect the views of my colleagues.

It is possible that on remand the
Judge may ultimately find facts showing that Jerritt Canyon Gold, LLC would be
a successor-in-interest to Veris Gold, but for the bankruptcy sale. If that
occurs, the parties should not assume, as the Judge of the Bankruptcy Court for
the District of Nevada apparently did, that Mr. Lowe and Mr. Varady should be
treated like any other creditors under the Bankruptcy Code.  Miners and others
who file claims based on discrimination or interference under section 105(c) of
the Mine Act have rights granted by Congress that may, at times, conflict with
rights and responsibilities contained in the Bankruptcy Code. The resolution of
those conflicts requires an understanding of the policy choices made by
Congress and the role of the Commission.

The primary purpose of the Mine Act
is to preserve “the health and safety of [the mining industry’s] most precious
resource – the miner.” 30 U.S.C. § 801(a). According to the legislative
history, Congress included section 105(c) because, for the Mine Act “to be
truly effective, miners will have to play an active part in the enforcement of
the Act.” S. Rep. No. 181, 95th Cong., 1st Sess. 35 (1977), reprinted in
Senate Subcommittee on Labor, Committee on Human Resources, 95th Cong., 2nd
Sess., Legislative History of the Federal Mine Safety and Health Act of 1977,
at 623 (1978). Congress recognized that “in a treacherous environment, miners
had to have the ability to act to protect their safety. . . . Obviously, if
miners advocate strongly for their own safety, they could be inviting
retaliation from mine management.” Riordan v. Knox Creek Coal Corp., 38
FMSHRC 1914, 1920 (Aug. 2016). Hence, Congress concluded that “if miners are to
be encouraged to be active in matters of safety and health, they must be
protected against any possible discrimination which they might suffer as a
result of their participation.” Legislative History, supra , at
623.

Hence, a miner who has established
discrimination under section 105(c) of the Mine Act has a
Congressionally-recognized status beyond that of an ordinary creditor under the
Bankruptcy Code. In this regard, it does not matter whether the action which
established the miner’s entitlement as a discriminatee was brought by the
Secretary of Labor under section 105(c)(2) or by the miner himself or herself
under section 105(c)(3), as in the cases of Mr. Lowe and Mr. Varady.

As the body designated by Congress
to assess penalties and adjudicate contested matters under the Mine Act, it is
the Commission’s institutional responsibility to honor Congress’ policy choices
regarding the safety and health of miners. It is possible in this instance that
the policy choices made by Congress in the Bankruptcy Code [3]
are at odds with the choices it made in the Mine Act. In the context of a
policy conflict, the Commission’s mission is to uphold the purposes of the Mine
Act.

Other agencies and courts have
taken a similar view regarding policy conflicts with the Bankruptcy Code. For
example, in International Technical Products Corp. , the National Labor
Relations Board discussed whether a company that purchased all of the assets of
a predecessor company “free and clear of all liens” pursuant to an order of a
bankruptcy court could be held responsible for a predecessor’s backpay
liability. 249 NLRB 1301 (Jun. 1980). After determining that the purchaser was
a bona fide successor, the Board held unequivocally, “we find that . . .
liability was not . . . extinguished by the bankruptcy court’s order allowing
[the successor] to purchase [the predecessor’s] assets free and clear of all
liens, claims, and encumbrances.” Id . at 1303. The Board noted that
Congress had granted it exclusive authority to modify or set aside a claim
under the National Labor Relations Act and that it therefore did not share that
authority with the bankruptcy courts. Id . The Board believed that
finding otherwise would “be tantamount to a relinquishment by the Board of its
statutory obligation to remedy unfair labor practices and also its authority .
. . to proceed against a successor employer in furtherance of that obligation.”
Id . In explaining why the Board’s Order superseded and was not bound by
the Bankruptcy order, the Board noted:

[U]nlike the bankruptcy court’s order
which affects only the assets of a bankrupt, a Board order, which enforces a
public rather than a private right, reaches beyond the assets of an employer
and attaches to the employing entity itself. To insure that the adverse effects
of a wrongdoer’s unlawful conduct are eliminated and that the public right is
vindicated, it is essential that there be full compliance with the Board’s
order requiring that the employer comply with the order’s remedial provisions.
It should be noted, however, that while on certain occasions the remedial
provision of a Board order may or may not, depending on the violations found,
require financial reimbursement, that order seeks only to remedy a wrongdoer’s
unlawful conduct and to this end it is fashioned without regard to a
wrongdoer’s past, present, or future state of assets. Thus, it cannot be
classified or treated simply as a “lien, claim, or encumbrance” within the
common usage of those terms and, consequently, any liability arising therefrom
cannot be extinguished or modified . . . through the purchase . . .

Id . at 1304.

The Board explicitly reaffirmed the
holding in International Technical Products just six years ago in Leiferman
Enterprises, LLC , 355 NLRB 364 (Aug. 2010) incorporating by reference 354
NLRB 872 (Oct. 2009), aff’d sub. nom . NLRB v. Leiferman
Enterprsies, LLC , 649 F.3d 873 (8th Cir. 2011), cert den . 132 S.Ct.
1741 (2012).

The interests described by the NLRB
are substantially similar to those of the Commission. Specifically, Congress
granted the Commission, and not the bankruptcy courts, the authority to modify
and set aside discrimination and interference claims under the Mine Act. Similarly,
the discrimination provision in section 105(c) enforces public rights rather
than private rights, by protecting miners who make safety complaints.

Courts have also been willing to
hold successors-in-interest liable for the actions of their bankrupt
predecessors in certain circumstances. For example, in Chicago Truck
Drivers, Helpers and Warehouse Workers Union (Independent) Pension Fund, et
al., v. Tasemkin, Inc ., a company filed for Chapter 7 liquidation at a time
that it owed $300,000 to its pension fund. 59 F.3d 48, 49 (7th Cir. 1995). The
fund attempted to recover its claim in the liquidation proceeding but failed. Id .
Eventually a new company, Tasemkin, Inc., ended up with all of the original
company’s assets. Id . Two years after the bankruptcy closed, the Fund sued
Tasemkin, Inc., as a successor. Id . The Seventh Circuit noted that many
of the protections contained in the Bankruptcy Code no longer exist once the
bankruptcy proceeding is closed nor did those protections apply to a successor.
Id . at 51. More importantly, the court ultimately allowed successor
liability, noting:

What the
imposition of successor liability would accomplish, and what the district court
objected to, would be a second opportunity for a creditor to recover on
liabilities after coming away from the bankruptcy proceeding empty-handed. But
a second chance is precisely the point of successor liability, and it is not
clear why an intervening bankruptcy proceeding, in particular, should have a per
se  preclusive effect on the creditor’s chances.

Id .

A very recent ERISA case in the
Ninth Circuit reached a substantially similar result. In Carpenters Health
and Security Trust of Western Washington v. Paramount Scaffold, Inc., et al. ,
2016 L.R.R.M. 27,070 (W.D. Wash. 2016), the court heard a claim that an
employer had withheld required sums from a pension fund. Id . The
employer eventually filed for Chapter 11 bankruptcy and a new company purchased
the assets in a free and clear bankruptcy sale. Id . The pension fund
pursued the purchaser as a successor. Id . As in Tasemkin , the
court found that many of the bankruptcy protections afforded to debtors did not
apply to successors after the close of the bankruptcy proceeding. Id . The
court described the successorship doctrine as an “exception from the general
rule that a purchaser of assets does not acquire a seller’s liabilities” and
found for the pension fund. Id . citing Resilient Floor
Covering Pension Trust Fund Bd. of Trs. v. Michael's Floor Covering, Inc. ,
801 F.3d 1079, 1090 (9th Cir.2015). In short, the court found essentially the
same thing that the NLRB had found: a successor can be found liable for a
predecessor’s actions even after a “free and clear” sale.

It is with those considerations in
mind that I join my colleagues in vacating the Judge’s dismissal of these
matters.  

/s/ Robert F.
Cohen, Jr.

Robert F. Cohen,
Jr., Commissioner

[1]
It is premature for the Commission to draw or suggest any legal conclusions
based on the record in this case. The initial analysis and fact-finding required
to support such conclusions are properly the province of the Judge on remand. See
also Martin County Coal Corp. , 28 FMSHRC 247 (May 2006) (holding
that “fact-finding is not the province of the Commission”).

[2]
We note that in two somewhat similar proceedings, the claimants settled their
claims in a manner satisfactory to all parties. Sec’y of Labor on behalf of Cheryl
Garcia v. Veris Gold USA, INC., and its successors, WEST 2014-905-0DC,
Unpublished Order dated July 14, 2016; Sec’y of Labor on behalf of Jennifer
Morreale v. Veris Gold USA, Inc., Jerritt Canyon Gold, LLC, Whitebox
Management, & Eric Sprott, WEST 2014-793-DM, Unpublished Order dated
May 25, 2016 .

[3]
Article I of the Constitution grants Congress the power to enact bankruptcy
laws. U.S. Const. art. I, § 8, cl. 4. Congress has exercised that authority on
numerous occasions, sometimes amending the Bankruptcy Code to reflect new
policy preferences. See, e.g ., Bankruptcy Abuse Prevention and Consumer
Protection Act Pub. L. 109–8, 119 Stat. 23 (2005); Todd J. Zywicki, The
Past, Present, and Future of Bankruptcy Law in America , 101 Mich. L. Rev.
2016 (2003). Broadly speaking, the purpose of the current Bankruptcy Code is to
equitably distribute a debtor’s estate and give debtors a fresh start
unburdened by the existence of old debts. See In re Labor Industries
of California, Inc. , 675 F.2d 1062, 1065-66 (9th Cir. 1982) and In re
Stoltz , 315 F.3d 80, 94 (2d Cir. 2002).