Wyodak Resources Development Corp. v. United States

United States Court of Appeals
for the Federal Circuit
______________________
WYODAK RESOURCES DEVELOPMENT CORP.,
Plaintiff-Appellant,
v.
UNITED STATES,
Defendant-Appellee.
______________________
2013-5049
______________________
Appeal from the United States Court of Federal
Claims in No. 11-CV-0335, Judge Edward J. Damich.
______________________
Decided: December 13, 2013
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WALTER F. EGGERS, III, Holland & Hart, LLP, of
Cheyenne, Wyoming, argued for plaintiff-appellant. With
him on the brief was ANDREW A. IRVINE, of Jackson,
Wyoming.
A. BONDURANT ELEY, Trial Attorney, Commercial Liti-
gation Branch, Civil Division, United States Department
of Justice, of Washington, DC, argued for defendant-
appellee. With her on the brief were STUART F. DELERY,
Acting Assistant Attorney General, and JEANNE E.
DAVIDSON, Director.
______________________
2 WYODAK RESOURCES v. US
Before LOURIE, BRYSON, and O’MALLEY, Circuit Judges.
BRYSON, Circuit Judge.
This is a pure statutory construction case. The proper
construction of the statute, as applied to this case, is not
obvious, as evidenced by the fact that the Court of Federal
Claims and a district court have both construed the
statute differently than we do. In the end, however, we
conclude that the language and purpose of the statute are
best served by adopting the construction proposed by the
appellant.
I
The statute at issue is the Surface Mining Control
and Reclamation Act of 1977 (“SMCRA”), 30 U.S.C.
§§ 1201-1328. The Act was designed in part to require
coal companies to underwrite the costs of restoring lands
damaged by coal mining, especially surface mining. To
achieve that goal, the statute imposes a fee on each ton of
coal extracted from surface or subsurface mines in the
United States. The fee is not uniform, but varies accord-
ing to whether the coal came from a subsurface mine or a
surface mine, and whether the coal is lignite or some
other type of coal. This case turns on the latter distinc-
tion.
Section 402(a) of SMCRA imposes a reclamation fee of
28 cents per ton of coal produced by surface coal mining
and 12 cents per ton of coal produced by underground
mining, or 10 percent of the value of the coal at the mine,
whichever is less. However, the statute provides that the
reclamation fee for lignite coal shall be eight cents per ton
or two percent of the value of the coal at the mine, which-
ever is less. 1 30 U.S.C. § 1232(a). The statute defines
1Prior to fiscal year 2008, the reclamation fees
were 35 cents per ton of coal produced by surface coal
WYODAK RESOURCES v. US 3
“lignite coal” to mean “consolidated lignitic coal having
less than 8,300 British thermal units [“BTUs”] per pound,
moist and mineral matter free.” Id. § 1291(30).
Lignite coal differs from other types of coal, i.e., bitu-
minous, subbituminous, and anthracite, in that it is
“brownish-black coal in which the alteration of vegetal
material has proceeded further than in peat but not so far
as subbituminous coal.” U.S. Dep’t of the Interior, Bu-
reau of Mines, A Dictionary of Mining, Mineral, and
Related Terms 641 (1968). “All [coal-like] fossil fuels form
a continuous and progressive series, ranging from lignite,
through the various bituminous coals, to anthracite.” Id.
at 896. Lignite produces less energy than other types of
coal, as measured by the number of BTUs per pound.
Wyodak Resources Development Co. owns and op-
erates the Wyodak Mine in the Powder River Basin near
Gillette, Wyoming. The mine is in an area where the coal
transitions from subbituminous to lignite in the coal
seams. For example, Wyodak’s evidence showed that in
two seams otherwise consisting of subbituminous coal, an
average of 4.2 feet of lignite occurred within eight feet
above the parting of the two seams and an average of 5.6
feet of lignite occurred within nine feet below the parting.
Wyodak engages in open-pit mining, also known as
strip mining, which involves removing the overburden
over a seam of coal and then extracting the uncovered
coal. Coal is dislodged from seams in the mine by explo-
sive charges. Where the seam contains both lignite and
subbituminous coal, the controlled explosions dislodge
both types of coal. The coal is then carried by front-end
mining, 15 cents per ton of coal produced by underground
mining, and 10 cents per ton of lignite coal. See Tax
Relief and Health Care Act of 2006, Pub. L. No. 109-432,
div. C, § 202, 120 Stat. 2922, 3008.
4 WYODAK RESOURCES v. US
loaders to an in-pit crusher system that crushes it into
chunks about eight inches in diameter. After that initial
processing, the coal is transported by conveyor belt to a
secondary crusher where it is reduced to smaller sized
pieces, after which it is stored for ultimate transport and
sale.
The end product of this process is coal that consists of
a mixture of subbituminous and lignite coal. The price at
which the product is sold depends on the BTU per pound
value of the particular mixture. The BTU value depends
on the amounts of different types of coal contained in the
mixture.
For years, Wyodak paid the higher statutory reclama-
tion fee for non-lignite coal. In 2005, Wyodak retained an
independent consulting service to determine whether
lignite coal was present in the mine. After sampling and
testing, the consulting service confirmed the presence of
lignite coal. The consulting service estimated that 12
percent of the coal at the Wyodak mine was lignite and
the remaining 88 percent was the higher quality subbi-
tuminous coal. An expert for the Office of Surface Mining
(“OSM”) later admitted that the Wyodak mine contains
lignite coal along with subbituminous coal.
Wyodak then advised OSM that because some of the
coal removed from the mine was lignite, the company had
been overpaying the reclamation fee. When Wyodak
sought a refund of its reclamation fees for the amount of
lignite coal that it had extracted, OSM denied the request.
In an administrative review, OSM maintained its position
that all of Wyodak’s coal was assessable at the higher fee
for non-lignite coal having a BTU value higher than 8300
BTUs per pound. Wyodak then sought judicial review of
OSM’s decision.
Wyodak initially sought relief from a district court,
which ruled against Wyodak on the merits. Wyodak Res.
Dev. Corp. v. United States, No. 07-CV-301 (D. Wyo.
WYODAK RESOURCES v. US 5
2009). On appeal, the Tenth Circuit dismissed the action
for want of jurisdiction. See Wyodak Res. Dev. Corp. v.
United States, 637 F.3d 1127 (10th Cir. 2011). Wyodak
then filed this action in the Court of Federal Claims
seeking a refund of a portion of the reclamation fees it
had paid for coal that it produced from 1980 to 2006.
The Court of Federal Claims first ruled that it had ju-
risdiction only over the portion of the refund claims
arising within six years of the May 2011 filing date.
Wyodak Res. Dev. Corp. v. United States, 107 Fed. Cl. 624,
630-31 (2012). It then denied relief on the merits with
regard to the claims that were still within its jurisdiction.
Id. at 631-32. The court held that SMCRA imposes the
reclamation fee on coal as extracted. Because the method
of extraction at the Wyodak mine results in a blended-coal
product, the court concluded that the coal as extracted is
not readily identifiable as either subbituminous or lignite.
Because the BTU value of the blended product is higher
than 8300 BTUs per pound, the court held that Wyodak
was not entitled to a refund for any lignite coal that might
be contained in the mixture. Wyodak then took this
appeal. 2
II
On appeal, Wyodak contends that approximately 12
percent of the coal in its mine is lignite, and that it is
entitled to the lower statutory fee for that portion of its
extracted coal. Wyodak argues that the mixing of lignite
and subbituminous coal that results from the extraction
process does not change the fact that the extracted prod-
2 Wyodak has not appealed from the part of the tri-
al court’s judgment dismissing the portion of the refund
claim going back more than six years. That part of the
judgment is not affected by our ruling on the statutory
construction claim.
6 WYODAK RESOURCES v. US
uct still contains a significant portion of lignite. It was
lignite in the ground, Wyodak argues, and it is no less
lignite after it is extracted.
We agree with Wyodak. SMCRA makes the reclama-
tion fee turn on the source or rank of coal that is extracted
from the ground. See Consolidation Coal Co. v. United
States, 615 F.3d 1378, 1382 (Fed. Cir. 2010); Consolida-
tion Coal Co. v. United States, 528 F.3d 1344, 1347 (Fed.
Cir. 2008). The Act refers not only to lignite coal, but also
to bituminous coal, 30 U.S.C. § 1277, and anthracite coal,
id. § 1279. It does not refer to mixed or blended coal as a
type or rank of coal, however. The focus on recognized
ranks of coal indicates that when the reclamation fee
depends on the type of coal extracted from the mine, the
fee should be calculated based on the amounts of coal of
each rank that are extracted.
The coal that is extracted from Wyodak’s mine in-
cludes lignite. The mixture that results from the extrac-
tion process in areas where both subbituminous and
lignite coal are found is therefore partly lignite in compo-
sition. The fact that lignite is mixed with subbituminous
coal in the course of the extraction process does not make
the lignite portion of the mixture anything other than
lignitic coal.
The government relies on Consolidation Coal Co. v.
United States, 615 F.3d 1378 (Fed. Cir. 2010), and Consol-
idation Coal Co. v. United States, 528 F.3d 1344 (Fed. Cir.
2008), for the proposition that coal “produced” under the
statute means coal that is “extracted.” The government
contends that because Wyodak’s coal, following its extrac-
tion, is a mixture of lignite and subbituminous coal, it is
not lignite coal at that stage. That argument misses the
point. Following the extraction process, the product of the
mine may be a mixture of different types of coal, but that
mixture still contains lignite, and lignite is subject to a
lower statutory reclamation fee.
WYODAK RESOURCES v. US 7
The government’s theory of this case distorts the test
for determining whether coal will be taxed at the normal
rate or at the rate for lignite. Under the government’s
theory, it does not matter how much lignite is contained
in a mixture of different types of coal that is extracted
from the mine. According to the government, as long as
the mixture has a BTU value of more than 8300 BTUs per
pound, the entire mixture will be subject to the higher fee;
none of it will be subject to the rate for lignite, no matter
how much lignite the mixture contains.
That theory ignores the fact that the statute fixes the
reclamation fee for “lignite coal” at a lower rate than all
other coal, 30 U.S.C. § 1232(a), and defines “lignite coal”
as “consolidated lignitic coal having less than 8,300
British thermal units per pound, moist and mineral
matter free,” id. § 1291(30). The statutory test turns on
the amounts of coal of different ranks in the product that
is extracted from the mine; it is not simply a function of
the BTU value of the mixture.
The legislative history of SMCRA shows that Con-
gress sought to impose lesser fees on lignite coal because
that coal, having a lower energy level, is less valuable
than other forms of coal and therefore would be dispropor-
tionately affected if it were subject to the same per ton
reclamation fee as other coal. See H.R. Rep. No. 95-218,
at 137 (1977); H.R. Conf. Rep. No. 95-493, at 98 (1977)
(“lignite generally has had a lower value than coal and
thus a 10 percent fee could be onerous”); 121 Cong. Rec.
6689-90 (1975) (statement of Rep. Andrews); id. at 6797
(statements of Reps. Hays and Udall). To ignore the
presence of substantial amounts of lignite in calculating
the reclamation fee would be inconsistent with the statu-
tory purpose of imposing a lesser burden on that less
valuable type of coal.
Moreover, the legislative history shows that Congress
explicitly considered a test that would make the amount
8 WYODAK RESOURCES v. US
of the reclamation fee turn solely on the BTU value of the
coal extracted from a mine. See H.R. Rep. No. 93-1072, at
35 (1974). Congress ultimately rejected that approach in
favor of charging a single fee for all types of coal other
than lignite and a lesser fee for lignite. Yet the effect of
the government’s test would be to make the reclamation
fee turn solely on the BTU value of the blended coal,
exactly the approach that Congress rejected in favor of
creating a special reclamation fee rate for lignite coal.
The government’s “BTU-only” test would produce two
potential anomalies. A mixture of coal types that has a
BTU value above 8300 would be subject to the higher fee,
even though it might contain a substantial amount of
lignite. But by the same token, a mixture of coal types
that has a BTU value below 8300 would be subject to the
lower, lignite fee, even though it might contain a substan-
tial amount of higher quality coal, such as subbituminous
coal. Those results would fly in the face of a statutory
scheme that bases the reclamation fee on the type of coal
extracted, not the energy level of the extracted product,
without regard to its composition.
The government’s theory suffers from another flaw as
well. The government acknowledges that if, at the con-
clusion of the extraction process, Wyodak placed its
lignite and subbituminous coal in separate containers, the
coal in the lignite containers would be subject to the lower
statutory reclamation fee. We see no reason that a differ-
ent result should obtain simply because the extraction
process results in Wyodak generating product that con-
sists of a mixture of lignite and subbituminous coal that
Wyodak does not separate into its constituent parts. If
Wyodak is able to verify the quantity of lignite coal in the
mixture that it extracts from the mine by a reliable meth-
od, there is no reason that the method of extraction
should be deemed to convert coal that otherwise would
have been treated as 12 percent lignite into a mixture
that is treated as if it contains no lignite at all.
WYODAK RESOURCES v. US 9
The government’s theory of this case is contrary to the
way OSM assesses reclamation fees in other situations in
which the product consists of a mixture of coal that is
subject to different fee rates. One such example involves
in situ gasification. In situ gasification is an on-site
process in which the coal is converted into a gaseous
substance that is then sold to customers. Once the coal is
converted into gaseous form, it is impossible to determine
whether it was originally lignite or some other form of
coal.
OSM’s regulations provide that the reclamation fee
assessed on the coal that is subject to gasification is
determined by analyzing the type of coal that is used in
the gasification process. 30 C.F.R. § 870.13(a)(4). That
regulation makes clear that the statutory requirement
that lignite coal be treated differently from other types of
coal requires that the fees must be based on a pre-
processing determination of the type or types of coal that
are used in the gasification process.
Another such example involves mixtures of surface-
mined coal and underground-mined coal. Surface-mined
coal is subject to a different fee rate from underground-
mined coal. When surface-mined coal and underground-
mined coal are combined before the coal is weighed for fee
purposes, OSM’s regulations provide that the higher
reclamation fee will apply “unless the operator can sub-
stantiate the amount of coal produced by surface mining
by acceptable engineering calculations or other reports
which the Director may require.” 30 C.F.R. § 870.12(c).
Thus, in that analogous situation, OSM allows the mine
operator to demonstrate that prior to mixing the coal from
the surface and subsurface mines, the components of the
mixture were subject to different fee rates and to have the
fee lowered in light of the lower fee rate applicable to
subsurface mined coal.
10 WYODAK RESOURCES v. US
To reach that conclusion, OSM must necessarily be
construing the reclamation fee statute to require consid-
eration of the source of the constituents of the coal mix-
ture. Applying the same analysis to an extracted mixture
of lignite and subbituminous coal would require the
mixture to be characterized according to its constituent
components. 3
A final consideration favoring Wyodak’s construction
is based on a parallel statute, the Black Lung Excise Tax,
26 U.S.C. § 4121. That statute imposes a tax on coal from
surface and underground mines, but does not impose the
tax on lignite coal that is extracted from those mines. Id.
§ 4121(b), (c). By regulation, the Internal Revenue Ser-
vice has addressed the situation presented in this case
and has ruled that “[i]f a producer extracts both taxable
coal and lignite, then the producer must maintain ade-
quate records to establish the portion of the mineral
mined that is exempt from the tax.” 26 C.F.R. § 48.4121-
1(c)(1). Applying that regulation, the Internal Revenue
Service has interpreted the statutory exemption for
lignite to apply to the lignite present in Wyodak’s extract-
ed coal, even though the coal as extracted consists of a
mixture of lignite and subbituminous coal. See IRS Chief
Counsel Advice No. AM2009-007 (Aug. 21, 2009). While
the Internal Revenue Service’s regulations and practice in
applying the Black Lung Excise Tax Act are not directly
applicable to OSM’s construction of SMCRA, the adminis-
3 The government acknowledges that no OSM regu-
lation explicitly addresses the issue this case and that the
case therefore does not entail deference to the agency’s
construction of the applicable statute under Chevron
U.S.A., Inc. v. Natural Resources Defense Council, Inc.,
467 U.S. 837 (1984), or deference to the agency’s interpre-
tation of its own regulations under Auer v. Robbins, 519
U.S. 452 (1997).
WYODAK RESOURCES v. US 11
trative construction of the analogous Black Lung Excise
Tax provides support for Wyodak’s construction of the
SMCRA reclamation fee provision by demonstrating that
Wyodak’s construction is both reasonable and admin-
istrable.
For the foregoing reasons, we conclude that OSM’s
application of SMCRA to the coal produced at the Wyodak
mine is legally incorrect. That is not to say that Wyodak
is necessarily entitled to the refund that it seeks. It
remains for Wyodak to produce satisfactory evidence,
pursuant to reliable methods of testing and ranking,
showing that the coal extracted from its mine contains an
appreciable quantity of lignite. Any issues as to the
sufficiency of Wyodak’s evidence in that regard remain to
be resolved on remand.
REVERSED and REMANDED