COMMONWEALTH OF KENTUCKY, NATURAL RESOURCES AND ENVIRONMENTAL PROTECTION CABINET V. LYNN EVANS AND DENZIL COLEMAN AND COMMONWEALTH OF KENTUCKY, NATURAL RESOURCES AND ENVIRONMENTAL PROTECTION CABINET V. E & C COAL COMPANY, R & H MINERAL ENTERPRISES OF WESTERN KENTUCKY, INC., AND DENZIL COLEMAN
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RENDERED: JANUARY 25,200l
TO BE PUBLISHED
1999-SC-0209-DG
COMMONWEALTH OF KENTUCKY,
NATURAL RESOURCES AND
ENVIRONMENTAL PROTECTION
CABINET
V.
ON REVIEW FROM THE COURT OF APPEALS
1997-CA-2745
FRANKLIN CIRCUIT COURT
1995Cl-00959
LYNN EVANS AND DENZIL COLEMAN
APPELLEES
AND
1999-SC-0210-DG
COMMONWEALTH OF KENTUCKY,
NATURAL RESOURCES AND
ENVIRONMENTAL PROTECTION CABINET
V.
APPELLANTS
ON APPEAL FROM THE COURT OF APPEALS
1997-CA-2 105 AND 1997-CA-2 106
FRANKLIN CIRCUIT COURT
1995-Cl-00960, 1995-Cl-001021
E & C COAL COMPANY,
R & H MINERAL ENTERPRISES OF WESTERN
KENTUCKY, INC., AND DENZIL COLEMAN
APPELLEES
OPINION OF THE COURT BY JUSTICE STUMBO
REVERSING AND REMANDING
This appeal arises from two cases which we have chosen to hear together,
based on similarity of issues. The issue underlying both of these cases is whether
individual civil penalties can be imposed against shareholders, directors, or agents of a
corporation during administrative review, or whether such penalties must await an
enforcement action against the corporation in circuit court.
Though the individual facts of the two cases differ slightly, the crux of the
dilemma resides in the fact that two coal companies failed to secure valid performance
bonds, placing them in violation of KRS 350.060. Denzil Coleman was the sole
shareholder and officer of E & C Coal Co. and R & H Coal Co., the companies in
question in Commonwealth of Kentuckv. Natural Resources and Environmental
Protection Cabinet v. E & C Coal Comoanv. et al.
Both companies held mining permits
and performance bonds as required by law. The sureties of the bonds became
insolvent and thus left the permits without bond coverage. As a result, the companies
were in violation of KRS 350.060. The Commonwealth of Kentucky, Natural Resources
and Environmental Protection Cabinet (hereinafter “Cabinet”), issued notices of
noncompliance to E & C and R & H. Both companies were ordered to complete
remedial measures, including obtaining new bond coverage, or demonstrating efforts to
obtain a new bond. The companies failed to secure valid performance bonds and the
Cabinet issued cessation and immediate compliance orders.
The Cabinet eventually brought an administrative action to impose civil penalties
upon the companies and Coleman individually, and were successful. This appeal
followed.
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The second case, Commonwealth of Kentucky. Natural Resources and
Environmental Protection Cabinet v. Evans, et al., is almost factually identical, except
that the administrative complaint sought to impose civil liability against Lynn Evans and
Denzil Coleman (also a respondent in Commonwealth of Kentucky. Natural Resources
and Environmental Protection Cabinet v. E & C Coal Comoanv. et al.), as co-guarantors
on a performance bond for a site mined by permit holder Poplar Grove Mining Co., Inc.
This bond also became invalid due to insolvency of the surety. The Cabinet secretary
found, just as in Commonwealth of Kentucky, Natural Resources and Environmental
Protection Cabinet v. E & C Coal Company, et al., that individual liability could be
imposed against Coleman and Evans.
In both cases, the administrative action was appealed to the Franklin Circuit
Court. On appeal, the circuit court affirmed the secretary’s orders with respect to the
companies, but vacated the orders to the extent that they imposed any individual
liability on Coleman or Evans. The Court of Appeals affirmed that opinion in both
cases. We granted discretionary review, and now reverse the Court of Appeals.
Individual liability is addressed under KRS 350.990(g):
When a corporate permittee violates any provision of this chapter
or administrative regulation promulgated pursuant thereto or fails or
refuses to comply with any final order issued by the secretary, any
director, officer, or agent of the corporation who willfully and
knowingly authorized, ordered, or carried out the violation, failure or
refusal shall be subject to the same civil penalties, fines, and
imprisonment as may be imposed upon a person pursuant to this
section.
The Franklin Circuit Court, and subsequently the Court of Appeals, read this section to
mean that individual liability may only be assessed after the corporation has failed to
comply with a final order of the secretary. The courts below also read Commonwealth
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of Kentuckv. Natural Resources and Environmental Protection Cabinet v. Williams, Ky.,
768 S.W.2d 47 (1989) as bolstering that idea. The language they found persuasive is
as follows:
The language of subsection nine (9) of KRS 350.990 which covers
Williams’ liability in the event the “corporate permittee . . . fails or
refuses to comply with any final order issued by the secretary,”
necessarily implies that the enforcement procedure provided for
therein against the corporate officer “who willfully and knowingly
authorized, ordered, or carried out such . . . failure or refusal” shall
be in Franklin Circuit Court because liability is predicated on failure
by the corporate permittee to comply with the secretary’s “final
order.” Chronologically, such failure can only occur after the
administrative procedure against the corporation has culminated in
an order that has been disobeyed.
u. at 49. (Ellipses in original).
It is clear from the record in this case that there has been no enforcement action
in circuit court against a corporate officer for disobeying the secretary’s order. The
action in Franklin Circuit Court was simply an appeal of the action to assess penalties,
not to enforce them. However, we believe that is irrelevant to the current proceeding.
The Cabinet correctly observed that KRS 350.990 does not confine individual liability to
the sole circumstance where the corporation fails to comply with a final order of the
secretary. Liability can also be predicated upon another condition under KRS 350.990,
which is when the “corporate permittee violates any provision of [the] chapter or
administrative regulation issued pursuant thereto.”
In the case against E & C Coal Co. and Coleman, the secretary determined that
the corporation violated a provision of chapter 350, namely KRS 350.060. There is no
dispute that the secretary has the power to make such a determination. KRS 350.990
also gives the secretary the power to determine that the individual officer “willfully and
knowingly authorized, ordered, or carried out the violation, failure or refusal,” which the
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secretary did in this case. The secretary found that, “[dlefendant Coleman, with plain
indifference to legal requirements, omitted to act within the 90 days to comply with
remedial measures set forth in the Non-Compliances, and this failure to act resulted in
a violation of 350.060, which entitled the Cabinet to issue the Cessation Orders.” We
believe this finding shows that Coleman willfully and knowingly authorized, ordered, or
carried out the violation. As a result, KRS 350.990 allows the secretary to impose “the
same civil penalties” he might otherwise order under this section. We therefore
interpret this statute to mean that the secretary may make the determination, at this
stage, that the officer was individually liable.
This same analysis applies to the case against Evans and Coleman as coguarantors on the surety bond. The secretary found, in his order, that the company
violated 405 KAR 16: 110; :020; and : 190, which are “administrative regulation[s]
promulgated pursuant” to a provision of KRS 350. The secretary, in his order, further
determined that “[dlefendants, with plain indifference to legal requirements, omitted to
act within the 90 days for compliance with remedial measures set forth in the NonCompliance, and this failure to act resulted in a violation of KRS Chapter 350, which
entitled the Cabinet to issue the Cessation Order.” M. Again, this finding by the
secretary shows that Evans and Coleman “willfully and knowingly authorized, ordered,
or carried out the violation.” Therefore, in this case, the secretary may also impose “the
same civil penalties” he might otherwise order under this section.
We also find the lower court’s interpretation of Commonwealth of Kentucky,
Natural Resources and Environmental Protection Cabinet v. Williams, Ky., 768 S.W.2d
47 (1989), erroneous. In that case, the president and sole shareholder, whom the
Cabinet were trying to hold individually liable, had not been a party to the administrative
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proceeding which resulted in the secretary’s order of penalties against the corporation.
rd. at 48. There is nothing in the Williams opinion which suggests that an officer of a
corporation cannot be held liable at the administrative stage if he or she is a party to
that proceeding. In fact, we have previously upheld the administrative level imposition
of civil penalties where the agent of the company was a party to the original proceeding.
See Couch v. Commonwealth of Kentucky. Natural Resources and Environmental
Protection Cabinet, Ky., 986 S.W.2d 158 (1999). In both of the cases at bar, the
administrative actions of the Cabinet involved the individual parties in question, thus
these cases are distinguishable from Williams.
Further, the Williams case discusses when an officer can be held liable for the
refusal of the company to comply with a final order to pay penalties. As discussed
supra, the Cabinet is not claiming liability under that portion of the statute.
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are claiming liability under the other disjunctive condition-willfully authorizing the
violation of a provision of KRS 350.
For the reasons stated above, we reverse the Court of Appeals, and remand to
the Franklin Circuit Court for further proceedings in conformity with this opinion.
All concur.
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ATTORNEYS FOR APPELLANTS:
Honorable Tamara J. Patrick
Natural Resources and
Environmental Protection Cabinet
Office of Legal Services
Fifth Floor, Capital Plaza Tower
Frankfort, KY 40601
Honorable Laura Hunter
Natural Resources and
Environmental Protection Cabinet
Office of Legal Services
Fifth Floor, Capital Plaza Tower
Frankfort, KY 40601
ATTORNEY FOR APPELLEES:
Honorable Donald Duff
212 Washington Street
P.O. Box 1160
Frankfort, KY 40602
JUDGE:
Honorable William L. Graham
Judge, Franklin Circuit Court
214 St. Clair Street
P.O. Box 678
Frankfort, KY 40602
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