KENTUCKY SOUTHERN COAL CORPORATION VS. COMMONWEALTH OF KENTUCKY
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RENDERED: DECEMBER 11, 2009; 10:00 A.M.
NOT TO BE PUBLISHED
Commonwealth of Kentucky
Court of Appeals
NO. 2008-CA-002229-MR
KENTUCKY SOUTHERN COAL CORPORATION
v.
APPELLANT
APPEAL FROM FRANKLIN CIRCUIT COURT
HONORABLE PHILLIP J. SHEPHERD, JUDGE
ACTION NO. 06-CI-00081
KENTUCKY ENERGY AND ENVIRONMENT
CABINET (FORMERLY THE ENVIRONMENTAL
AND PUBLIC PROTECTION CABINET)
APPELLEE
OPINION
AFFIRMING
** ** ** ** **
BEFORE: CLAYTON, DIXON AND THOMPSON, JUDGES.
DIXON, JUDGE: Appellant, Kentucky Southern Coal Corporation (“KSCC”),
appeals from a decision of the Franklin Circuit Court upholding a final order of
Appellee, the Kentucky Energy and Environment Cabinet1 (“Cabinet”) denying
Appellant’s mining license renewal application. Finding no error, we affirm.
1
Formerly the Environmental and Public Protection Cabinet.
This action concerns an 18.1- acre tract of land located in Hopkins
County that lies within the boundaries of a Surface Coal Mining and Reclamation
Permit held by KSCC. In 1936, Walter Crick acquired the surface tract to the 18.1
acres from KSCC’s predecessor in interest, Norton Coal Mining Company, by a
deed that contained a mineral reservation in favor of Norton. Harold and Georgia
Bandy subsequently acquired the surface tract from Crick.
Sometime thereafter a dispute arose between Norton and the Bandys
regarding the Crick deed and Norton’s right to mine the property. As a result,
Norton brought suit in the Hopkins Circuit Court. Norton Coal Company v.
Bandy, 84-CI-339. On March 13, 1985, the trial court entered a judgment
declaring Norton to be the owner of certain coal seams and granting it a 15-year
surface lease for the Bandy property, effective January 23, 1985. The judgment
provided, in relevant part:
2. The Defendants, Harold Bandy and Georgia Bandy,
do hereby let, lease and demise unto Norton Coal
Corporation, its successors and assigns, the surface rights
to 18.1 acres of land . . . for a period of fifteen (15) years,
commencing January 23, 1985. . . . During the term of
said Lease, the Plaintiff, Norton Coal Corporation, shall
have the right to strip mine the property and perform any
mining or associated operations thereon not prohibited by
this Judgment or state or federal law, . . . .
....
6(c). At the end of the fifteen (15) year term of this
lease, the Bandy Leasehold will be returned to the
Bandys reclaimed in accordance with state and federal
regulations[.]
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In 1995, the Bandys conveyed the disputed property to Jeff and Marion Reynolds.
In March 1990, KSCC acquired Norton’s rights in the lease. In 2004, the Reynolds
conveyed the 18.1-acre tract to the current owner, Cathy Gunn, individually and as
trustee for her children.
Sometime in late 1999 or earlier 2000, KSCC filed an application to
renew its mining permit for another five years. While the application was pending,
the Cabinet received a protest letter from the Reynolds claiming that the 1985
surface lease between the Bandys and Norton Coal had expired, and that a renewal
lease had not been negotiated. As such, on September 28, 2000, the Cabinet’s
Division of Permits denied KSCC’s application, finding that it had no legal right of
entry to the disputed property following the expiration of the 15-year surface lease.
KSCC thereafter submitted an amended petition, arguing for the first
time that the 15-year lease applied only to strip mining, and that its right of entry
was based upon the terms of its “broad form” mineral deed and did not require
consent of the surface owners. Nevertheless, in July 2004, the Division issued a
second determination, again concluding that the permit renewal should not be
granted because there was a bona fide dispute as to KSCC’s right of entry to the
surface:
The Division disagrees that it is clear from the [Hopkins
Circuit Court] Judgment that the 15-year lease and the
requirement to return the leasehold to the Bandys
reclaimed applied only to strip mining. The ambiguities
concerning the lease formulated by the Judgment and the
requirement that the Bandy leasehold be returned to the
Bandys reclaimed at the end of 15 years substantiates the
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Reynolds’ claim that there exists a bona fide property
dispute. In light of the Hopkins Circuit Court ruling,
Kentucky Southern’s argument that ownership of the
dominant mineral now allows it entry onto the Reynolds’
property without their consent is not valid. The Division
believes that it correctly denied the renewal.
The matter was thereafter submitted to the Cabinet’s hearing officer
for a report and recommended order. On April 27, 2005, the hearing officer
rendered his report, wherein he concluded:
[T]he Hearing Officer is of the opinion . . . that the
Cabinet properly applied the provisions of KRS
[Kentucky Revised Statutes] 350.060(2), 405 KAR
[Kentucky Administrative Regulations] 8:010, and 405
KAR 8:030 in determining that permit renewal could not
be authorized because the protest filed by Mr. Reynolds
and his assertion that Kentucky Southern needed a
surface lease in order to access his property created a
bona fide dispute. As to this determination, the Cabinet
did not resolve a property dispute when it concluded that
the Final Judgment Lease had expired and
notwithstanding Kentucky Southern’s assertions that
such lease was not needed, Mr. Reynolds objections were
such that the matter needed to be resolved before
Kentucky Southern could demonstrate that it had
submitted a complete and accurate permit petition.
Following the issuance of the Secretary’s final order adopting the
hearing officer’s recommendation and affirming the Division’s denial of the permit
renewal, KSCC sought review in the Franklin Circuit Court. By opinion and order
dated November 3, 2008, the circuit court affirmed the Cabinet’s decision. This
appeal ensued.
The function of the court in administrative matters “is one of review,
not reinterpretation.” Kentucky Unemployment Insurance Commission v. King,
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657 S.W.2d 250, 251 (Ky. App. 1983). A reviewing court may only overturn an
agency decision if the agency acted arbitrarily or outside the scope of its authority,
if the agency applied an incorrect rule of law, or if the decision itself is not
supported by substantial evidence of probative value. Kentucky State Racing
Commission v. Fuller, 481 S.W.2d 298, 300-301 (Ky. 1972). As long as there is
substantial evidence in the record to support the agency’s decision, we must defer
to that decision even if there is conflicting evidence. 500 Associates, Inc. v.
Natural Resources and Environmental Protection Cabinet, 204 S.W.3d 121 (Ky.
App. 2006).
On appeal, KSCC sets forth the same arguments that it did before the
Cabinet and the circuit court. Specifically, KSCC argues that the court and
Cabinet erred by refusing to recognize its prima facie right of entry based upon the
deeds and court judgments; that there can be no bona fide dispute because the
Reynolds no longer own the property; and that granting the permit is not an
adjudication of property rights. We disagree.
Because coal mining involves land disturbances of such magnitude to
both surface and underground areas, Kentucky requires private corporations
seeking to engage in such operations to establish a legal right to mine on the
property in question. The granting of a surface mining permit is governed by
Kentucky Revised Statutes (KRS) Chapter 350. KRS 350.060 provides, in
pertinent part:
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(2) No permit or revision application shall be approved
unless the application affirmatively demonstrates, and the
cabinet finds in writing on the basis of the information
set forth in the application or from information otherwise
available, that the permit application is accurate and
complete and that all the requirements of this chapter
have been complied with.
(3) A person desiring a permit to engage in surface coal
mining operations shall file an application which shall
state:
....
(b) The owner or owners of the surface of
the area of land to be affected by the permit
and the owner or owners of all surface area
adjacent to any part of the affected area;
....
(d) The source of the applicant's legal right
to mine the coal on the land affected by the
permit[.]
As noted by the circuit court, KRS 350.060(3)(b) and (d) were
enacted by the legislature “to prevent outlaw coal operators from seizing mineral
rights that are owned by others and to require the state permitting authorities to
respect the property rights of all its citizens.” In addition to statutory requirements,
405 Kentucky Administrative Regulations (KAR) 8:030, Section 4(2) further
requires that for severed estates, the application must contain: (a) A copy of the
written consent of the surface owner for the extraction of coal by surface mining
methods; or (b) A copy of the conveyance that expressly grants or reserves the
right to extract coal by surface mining methods; or (c) If the conveyance does not
expressly grant the right to extract the coal by surface mining methods, a copy of
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the original instrument of severance upon which the applicant bases his right to
extract coal by surface mining methods and documentation that under applicable
state law, the applicant has the legal authority to extract the coal by those methods.
See Johnson v. Environmental and Public Protection Cabinet, 289 S.W.3d 216,
219 (Ky. App. 2009). The burden is on the applicant to demonstrate the legal right
to mine.
After reviewing the record and decisions below, we are of the opinion
that the Franklin Circuit Court thoroughly addressed each and every issue raised by
KSCC. As such, we incorporate and adopt the reasoning set forth in its opinion
and order:
The expiration of the surface lease adjudicated by
the Hopkins Circuit Court creates a bona fide dispute as
to the rights of KSCC to mine the coal on the land in
question. The [Cabinet] has provided an abundant record
and opinions and briefs based upon reasonable
interpretations of that record. There is substantial
evidence in the record to support the decision of [the
Cabinet] to deny Petitioner’s renewal application.
KSCC makes much of the fact that the Reynolds
no longer own the property in question, and that they
have not actively participated in the agency decision for
several years. However, this Court finds this to be
irrelevant. The Reynolds are not required to be active
parties to the agency action. They properly intervened to
protect their legitimate interests in their own property.
Once that property was sold, it is understandable that
they would have a much diminished interest in the
litigation. Thus, their lack of participation is not
interpreted by the Court to be any manner of
acquiescence or waiver of their rights, nor can it be
interpreted to be a waiver of the rights of their successors
in interest. The fact that they no longer own the property
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in question is equally irrelevant. The current owner of
the property has the same legal rights in the estate as the
Reynolds had, and there has been no waiver, lease, or
deed executed by them in favor of KSCC. Thus, there
still appears to be a bona fide property dispute regarding
the 18.1 acre tract which must be resolved before
KSCC’s renewal application can be granted. [The
Cabinet] is acting within the scope of its statutory
mandate to require that this dispute be settled and
KSCC’s right to the property in question be made clear
before granting an application to mine.
....
KSCC argues that it has established a prima facie
right of entry, and that the mineral estate is dominant
over the surface estate. KRS Chapter 350 represents
Kentucky’s implementation of Public Law 95-87, the
federal Surface Mining Control and Reclamation Act, 30
U.S.C. Sec. 1255, et seq. (“SMCRA”). SMCRA
provides that “nothing herein authorizes the regulatory
authority to adjudicate property disputes.” 30 U.S.C.
Sec. 1260(6)(c). KSCC here seeks to have the Cabinet,
and this Court, “adjudicate property disputes” under the
guise of granting a permit application that would have the
effect of rendering competing property rights
meaningless.
KSCC may or may not have valid arguments to
make regarding its property rights, but the Cabinet, and
this Court, have no jurisdiction to adjudicate those
disputes. Any such dispute must be adjudicated in the
court of general jurisdiction in which the real estate is
located. See KRS 452.400. The burden is on the permit
applicant to resolve such issues prior to applying for, or
obtaining, a permit. Absent a valid lease, deed, contract
with the owners of the real estate, or judgment from a
court of competent jurisdiction, the Cabinet has no basis
for finding that KSCC has a legal right to mine this
property. No such evidence exists in this record.
KSCC’s lease has expired. It has offered no other basis
to support its right to mine that does not potentially
implicate the property rights of third parties. KSCC
essentially seeks to force the Cabinet to issue a permit
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that will render the competing property rights of others
null and void without ever giving them the opportunity to
be heard.
The Court notes that the rights of surface owners
are not necessarily subordinate to the rights of mineral
owners. See Florman v. Mebco Ltd. Partnership, 207
S.W.3d 593 (Ky. App. 2006); Ward v Harding, 860
S.W.2d 280 (Ky. 1993). No surface mining permit can
be issued until the permit applicant has demonstrated that
it meets all of the requirements of law. [KRS]
350.085(1). In any event, the burden is on the permit
applicant to establish its legal right to mine, and it would
be wrong to adjudicate these property interests in an
administrative proceeding. The administrative agency
lacks jurisdiction to adjudicate such property rights, and
KSCC has submitted no valid lease, deed, or other legal
authority that supports its right to mine this property.
Here, KSCC has simply failed to meet its burden.
Moreover, KSCC has not provided, and the Court does
not find, any credible evidence that [the Cabinet] has
misapplied the applicable law in this case. Accordingly,
the Court has no grounds upon which to reverse the
decision of the administrative agency.
In addition to agreeing with the rationale of the circuit court, we make
two additional observations. First, KSCC has insisted that the mineral reservation
in the Crick deed grants it unfettered access to the disputed property regardless of
the surface owner’s consent. If such were the case, Norton had no need to agree to
the 15-year surface lease in the 1985 judgment. An agreed surface lease would
have been unnecessary if Norton had intended to proceed solely under its mineral
reservation at that time. Thus, the very fact that the parties entered into the 15-year
lease calls into question what surface rights Norton, and later KSCC, held after the
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judgment was entered. Further, the expiration of the lease itself creates a genuine
issue as to what, if any, surface rights KSCC currently possesses.
Second, KSCC has adamantly claimed that no bona fide dispute can
exist because the Reynolds no longer own the property and the current owner,
Cathy Gunn, does not dispute KSCC’s right of entry. Yet, notably missing from
the record is any evidence of a deed, lease, or even written consent by Gunn
granting KSCC legal right of access to the property. As such, we conclude, as did
the Cabinet and circuit court, that KSCC has failed to comply with the plain
language of KRS Chapter 350 and, in fact, cannot comply with such, until the
property dispute is settled by a circuit court of general jurisdiction. KRS 23A.010.
Since such actions are civil in nature, they are not within the jurisdiction of an
administrative agency or, in this case, the Franklin Circuit Court, since the property
at issue is located in Hopkins County. See Johnson, 289 S.W.3d at 222;
Department for Natural Resources and Environmental Protection v. Stearns Coal
& Lumber Co., 563 S.W.2d 471 (Ky.1978).
Accordingly, the opinion and order of the Franklin Circuit Court is
affirmed.
ALL CONCUR.
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BRIEF FOR APPELLANT:
BRIEF FOR APPELLEE:
Sam P. Burchett
Lexington, Kentucky
Tamara J. Patrick
Frankfort, Kentucky
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