Here is more information on Governor Brown's removal of Elena Miller as the head of California's Division of Oil, Gas and Geothermal Resources (DOGGR). Derek Chernow, the head of California's Department of Conservation was also removed. In addition to supervising DOGGR, Chernow supervised California's State Mining and Geology Board and the Office of Mine Reclamation. As discussed in my presentation to the Industrial Minerals Association in September, the article makes clear that, at least for the time being, it's very much about jobs right now in California.
Entries authored by Tom Henry
I provided the following paper at the recent CalCIMA conference in Monterey, California.
The Office of Mine Reclamation’s (OMR) decision to list or delist a mine from its list of “good mines” maintained under Public Resources Code Section 2717 (the AB 3098 list) effectively precludes a mine from selling to public agencies, critical customers in an economic environment where private-party purchases are at a historically low level. This presentation reviews the requirements for listing a mine under Public Resources Code Section 2717, and the actual prohibitions on providing mined material to state and local agencies, as contained in Public Contract Code Sections 10295.5 and 20676. The presentation also covers the delisting criteria used by OMR and reviews the due process problems with OMR’s current delisting procedures. The presentation also will examine the status of the State Mining and Geology Board’s (Board) current efforts to develop due process regulations for delisting decisions.
AB 3098 Requirements
Public Resources Code Section 2717(b) requires that, for the purposes of complying with the Public Contract Code, OMR must publish a list identifying the following:
1. Surface mining operations for which a report has been submitted pursuant to Section 2207 indicating:
(a) The reclamation plan and financial assurance have been approved.
(b) Compliance with state reclamation standards pursuant to Section 2773.
(c) Compliance with the financial assurance guidelines developed pursuant to Section 2773.1.
(d) The annual reporting fee has been submitted to the Department.
2. Surface mining operations for which an appeal has been submitted pursuant to Section 2770(e), provided the appeal has not been pending before the Board for more than 180 days.
3. Surface Mining operations for which an inspection is required and for which an inspection notice has been submitted by the lead agency indicating compliance with the reclamation plan and sufficient financial assurances.
Utilizing this list of “good mines,” Public Contract Code Section 10295.5 requires that no state agency shall acquire or use minerals from mines subject to SMARA unless the operation is identified on the list published pursuant to Public Resources Code Section 2717 as having either: (1) an approved reclamation plan and financial assurances covering the affected mining operations or (2) an appeal pending before the Board pursuant to Public Resources Code Section 2717(b) with respect to the reclamation plan or financial assurances.
Likewise Public Contract Code section 20676, mining operators and contractors are prohibited from selling mined minerals to local agencies unless the mine is not subject to SMARA or unless the operator “certifies under penalty of perjury, that the minerals are from a mining operation identified in the list published pursuant to Section 2717(b)).”
Issues Raised By OMR’s Delisting Decisions
OMR has historically kept a single list. To be listed the mining operation had to meet all of the requirements set out in Section 2717, or have an appeal on a reclamation plan or financial assurances pending before the Board with SMARA.
OMR’s manner of maintaining the AB 3098 list is problematic. To be on the list maintained by OMR, the mining operation has to meet all of the requirements of Section 2717. Thus, a mining operation could have a reclamation plan and financial assurances, thereby meeting the requirements to sell to a State Agency under Public Contract Code section 10295.5, and yet be removed from the list because an inspection report reflected a problem with its operations.
Dennis O’Bryant’s February 2010 testimony before the Board as to how the program has been implemented also reflects other problems. In particular, OMR did not rely solely on lead agencies’ inspection reports, but appears to have made independent decisions with regard to whether a mining operation met the requirements of SMARA. In some instances OMR has taken the position that a mining operation that has a reclamation plan with a minor deviation no longer has an “approved” reclamation plan. Also, it appears that OMR would remove mining operations from the list when complaints were made to OMR about the operation, while other mining operations with problematic inspection reports remained on the list essentially because no one complained to OMR. Finally, OMR appears to have required that an inspection report indicate “full compliance” with SMARA, while the law suggests that “compliance” can mean “substantial” compliance.
Moreover, OMR’s historic interpretation of its responsibilities creates problems for mining operations that are committed to coming into compliance with SMARA. For example, a mining operation may overshoot their mining boundary and require a minor amendment to its CUP and reclamation plan. The operator may agree an amendment is needed, post financial assurances to ensure reclamation of the area, and diligently pursue a reclamation plan amendment. However, compliance with legal provisions such as environmental review under CEQA may delay the necessary approval for months. Other factors may make the situation even more complicated. For example, the deviation may have occurred on property not owned by the mine operator. Despite its best efforts the mining operation may be precluded from selling to state and local agencies during the time it takes to resolve all of these issues.
The Due Process Issue
In our opinion previous delisting actions by OMR have failed to provide legally required due process protections. California courts have held that actions by government agencies that exclude a person from doing business with a government entity must be accompanied by procedural safeguards, such as notice of the violation, an opportunity to rebut those violations and, under most circumstances, a hearing. The courts have further held that basic fairness in these circumstances requires establishing written standards for debarment, the right to cross-examine witnesses, and the development of administrative findings and conclusions based on the record.
Debarment of a government contractor requires procedural due process as such an action implicates a constitutionally protected liberty interest. The courts also have stated that the hearing must take place before an impartial arbiter or tribunal. Typically, due process would prohibit a government official that was involved in investigating and prosecuting a case from participating as an adjudicator.
For example, in the case of Golden Day Schools, Inc. v. State Department of Education, the court stated that “Disqualification from bidding or contracting . . . directs the power and prestige of government at a particular person and . . . may have a serious economic impact on that person. Such debarment cannot be left to administrative improvisation on a case-by-case basis.” (2000) 83 Cal.App.4th 695, 706.
SMGB Proposed Regulations
The State Mining and Geology Board has attempted to remedy this problem by proposing regulations that would, in part, provide procedures for removing mines from the AB 3098 List. The proposed regulations have been opposed by CalCIMA on the grounds that: 1) the Board lacks authority to enact the proposed regulations; and 2) the regulations go far beyond what is needed to fix the current problems with OMR’s delisting decisions. In particular, CalCIMA has noted that the regulations set out stringent requirements for listing decisions, including requirements that local agencies are likely to find onerous, and provides that third parties may challenge listing decisions.
Tom Henry and Mike Mills are partners at Stoel Rives LLP in the Sacramento, California office. They may be reached via email at firstname.lastname@example.org and email@example.com, respectively. Their business address is 500 Capitol Mall, Sacramento, CA 95814; telephone: 916-447-0700.
The Office of Mine Reclamation has the authority under Public Resources Code Section 2717 (the AB 3098 list) to list or delist a mine from its list of “good mines.” This authority can have an enormous impact on a mine’s ability to sell to public agencies, which is a critical status in an economic environment where private party purchases are at a historically low level.
Michael Mills and I will be presenting, “Off or On? Examining OMR’s AB 3098 Listing Procedures” at the CalCIMA 2011 Conference in Monterey, California. The presentation reviews the requirements for listing a mine on the AB 3098 List, including possible alternative interpretations as to the “compliance” requirements, and reviews the actual prohibitions on providing mined material to state at local agencies as contained in Public Contract Code Sections 10295.5 and 20676. Presenters review the delisting criteria used by OMR as presented by OMR to the State Mining and Geology Board in February 2010, and the potential due process problems with OMR’s delisting procedures. The presentation also reviews the status of the Board’s current efforts to develop due process regulations for delisting decisions.
Also, I will be speaking on California Regulatory Trends Affecting the Mining Industry on September 13, 2011 at the Industrial Minerals Assocation conference in Sonoma, California.
Please join the Stoel Rives Oil and Gas, Pipelines & Mining Law Team at the 57th Annual Rocky Mountain Mineral Law Institute in Santa Fe, NM on July 21-23, 2011.
We are pleased to be a sponsor of the Thursday evening Reception and we look forward to reconnecting with familiar faces and meeting new attendees. Please say hello to the nine attorneys from the Stoel Rives Oil and Gas, Pipelines & Mining team who are in attendance at the conference.
On Saturday, July 23, Jennie Bricker will be presenting on "Lake Beds and River Channels: Legal Issues in Boundaries and Ownership" which discusses the ownership of land and minerals underneath waterways.
We look forward to seeing you there!
For more information on this event, please visit: http://www.rmmlf.org/AI57brochure.pdf
CEQA, Mining and Vested Rights. Looking Back on the California Supreme Court's Decision in Communities for a Better Environment v. South Coast Air Quality Management District.
One year ago the California Supreme Court issued its decision in Communities for a Better Environment v. South Coast Air Quality Management District (2010) 48 Cal. 4th 310. Since our blog wasn’t up at the time I thought it would be a good idea to look back on that decision and how it impacts mine permitting issues in California.
The California Environmental Quality Act (“CEQA”) is this state’s equivalent of the National Environmental Policy Act (“NEPA”). CEQA requires administrative agencies to evaluate the environmental effects of discretionary decisions, such as issuing mining use permits. A projected project’s impacts must be evaluated against a project “baseline,” which is normally the existing site conditions at the time of the project application. Significant environmental effects identified during the CEQA review must then be mitigated to the extent feasible. The CEQA analysis is the most time consuming and costly part of obtaining an approval for a use permit. A CEQA evaluation may take years and hundreds of thousands of dollars to complete.
One difficult aspect of CEQA is how to determine proper the environmental baseline when the proposed site has existing, but as yet unused, entitlements. In other words, should the baseline be the unbuilt existing setting, or a hypothetical future setting taking into account the current entitlements.
This question is particularly important in the context of mining, when a mine may have a so-called “vested right” to mine. In the mining context a mine with a vested right is typically described as one for which a use permit is not required because the mine was in operation prior to any zoning restrictions and prior to the effective date of California’s Surface Mining and Reclamation Act (“SMARA). These mines are “grandfathered” in and do not require use permits for certain types of future expansions.
When a mining operation needs a CEQA review for another permit (e.g., an expansion beyond that allowed under its vested right), the question comes up whether the baseline should be the existing setting or the mine on full build out under its vested right. Of course, the importance of using a baseline that shows more mining than presently exists at the site is that the CEQA analysis would then show less of an impact. Less mitigation would likely then be required.
The CBE case answers this question while creating others. The case arose when ConocoPhillips applied to modify and replace certain equipment at one of its refineries. The modifications required the refinery’s existing boilers and cogeneration plant to operate at a higher average rate to produce additional steam. ConocoPhillips applied to the Air District for a permit to operate its proposed project. For its CEQA baseline, the Air District used the maximum permissible NOx emissions level for the equipment covered under the refinery’s previously issued permit. Because the proposed project would not cause NOx emissions to exceed the previously permitted maximum, the Air District found that no significant impact would result. CBE argued that the environmental baseline for purposes of determining the significance of a project's physical impacts is the "realized physical conditions on the ground," rather than a level that a prior permit may hypothetically allow. CBE's argument was that although ConocoPhillips could conceivably operate its boilers such that the maximum NOx emission level was reached, it had not done so to date and, therefore, the baseline was something less than the permitted maximum. On the other hand, ConocoPhillips argued that using the actual daily NOx emissions as the baseline rather than the maximum permitted boiler NOx emissions would impair Conoco's vested rights under its existing boiler permits. In siding with CBE, the Supreme Court disagreed that the existing permits constituted a vested right. However, the Court further noted that even when a vested right was at issue the environmental baseline should still be the existing setting. The presence of such a right would not excuse the District from performing what the Supreme Court characterized as a “realistic CEQA analysis.” In part, the Supreme Court noted that the purpose of CEQA is to fully inform the public as to the environmental effects of a project, and using hypothetical conditions as a baseline deprives the public of important information.
While certain exceptions apply, the general conclusion to take from the case is that even if a mining operation has a vested right to mine a much larger area, the applicant should use a baseline of the actual existing setting. The case also suggests, however, that the applicant may not be required to mitigate those impacts that would otherwise occur under the existing entitlements. While not spelled out by the Court, prior decisions under CEQA suggest that these potential mitigation measures could be considered legally infeasible. In any event, the case requires a carefully thought-out analysis for applications where mining vested rights are at issue.
Mining operations are often conducted on leased lands. As with any lease, disputes may come up between the landowner/lessor and the mining company/tenant. Over the last few years I’ve dealt with multiple situations in which the landowner either made, or threatened to make, complaints about the mining operation to regulatory agencies. In some situations the landowner tried to prevent the mining operator from obtaining permits the mine needed to operate. This type of situation may arise for various reasons other than dissatisfaction with the mine’s operations. For example, the landowner may feel that the royalty payments are inadequate and that he could get a better deal from another mining company. The landowner also might have been approached by a potential buyer who wants to use the land for a different purpose, such as residential development. The landowner may complain about the operations to a regulatory agency in an effort to harass or shut down the operations. In California, this situation can be particularly difficult to deal with, as the lead agency under California’s Surface Mining and Reclamation Act (“SMARA”) is usually the local county, with whom the landowner may have close personal contacts at the staff level.
In these situations, particularly in the early stages of a dispute, it is important to remember that the landowner cannot act as if he is just another member of the public. Rather, the landlord is bound to act in accordance with the terms of the lease, which includes both express provisions and covenants implied by law. For example, a lease may contain a provision requiring that the landlord cooperate in obtaining all “regulatory permits” needed to operate the mine. A lease may also have an arbitration clause that provides that “all disputes” between the parties must be submitted to arbitration. Arguably, “all disputes” encompass issues relating to whether the mine is complying with a regulatory requirement. For example, in a situation where a lease contains an arbitration provision, a mine operator can ask the arbitrator to appoint an independent expert to evaluate the landowner’s complaints.
Often overlooked in a dispute, particularly as to a landlord who has carefully reviewed the lease, is that the law implies certain provisions in all leases. In particular, in every lease there is an implied covenant of good faith and fair dealing that requires each party to not do anything that will impair, destroy or injure the rights of the other party to receive the benefits of the lease that the parties reasonably contemplated when they entered into the agreement. Obviously, this provision is quite broad and fills in gaps that may not have been expressly set out in the lease. As with any material lease provision, a landlord who violates the implied covenant of good faith and fair dealing may be liable to the mining company for damages.
Accordingly, it can be very helpful in the early stages of a dispute to remind the landlord of these requirements, so that the landlord does not feel free to make complaints to regulatory agencies about the operations.