reclaiming the law of suretyship

American University Washington College of Law

From the SelectedWorks of Barlow F. Burke

1997

Reclaiming the Law of SuretyshipBarlow F. Burke

Available at: https://works.bepress.com/barlow_burke/14/

http://www.wcl.american.edu/

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RECLAIMING THE LAW OF SURETYSHIP

Barlow Burke•

I. Introduction: The Law of Suretyship A. The Definition of a Surety B. Sureties and Insurers C. Guaranties, Warranties, and Sureties D. The Regulation of Sureties E. Surety and Contract Law F. Discharge of the Surety G. Surety Good Faith H. The Surety's Right to Reimbursement

II. The Development of Reclamation Bonds A. Statutory Antecedents B. Antecedent Case Law C. SMCRA

ill. The Regulation of SMCRA Bond Terms and Conditions A. Round I (Judge Flannery's Courtroom) B. Round II (Judge Flannery and the Circuit Court)

N. SMCRA's Bonding Requirement in Practice V. Un-coupling Bonds and Permits

VI. Bond Forfeiture Procedures VII. Bond Release Cases

Vill. Bonding and the Duration of Regulatory Jurisdiction

•

IX. Bonding the Longwall X. Conclusion

Professor and John Shennan Myers Scholar of Law, Washington College of Law, American University. My thanks to Bob Beck for first introducing me to SMCRA and for his helpful review of this article in earlier drafts, to Julie Richmond for helpful research in the first part of this article, and to my law school's summer research grant program for the time to pursue this subject.

449

450 Southern Illinois University Law Journal [Vol. 21

I. INTRODUCTION: THE LAW OF SURETYSHIP

Business finns, including miners and mining companies, seek to prevent loss in various ways. When their assets are real property, a mortgage may provide collateral or other security for their activities.

As security for a debt, a mortgage is only an effective remedy when it enables the creditor, such as a bank or other lender, to declare a default, seize the title in a foreclosure action, and then use the property to satisfy the mortgage debt. The Latin word for security was securitas, translated as sponsor.1 The idea of a mortgage lien or a security is that the property itself "sponsors" the repayment of the debt incurred in a mortgage loan.2

There are occasions, however, when the property is not available for such sponsorship. Indeed, this is true when its immediate use to satisfy the secured and foreclosed debt is unobtainable. One such situation arises when the property is in the course of being improved by the construction of a building on it. When a general contractor agrees to construct a building for an owner/debtor, but defaults on this agreement or obligation mid-way through construction, a mortgage foreclosure does not provide the lender with much satisfaction. The reason is that a half-built building is useless to the lender until its construction is complete and it can either be sold or rented in order to produce income to satisfy the debt. 3

In a similar situation, a municipality approving a subdivision of land may impose several conditions on a developer. These conditions relate to the installation of pipes for water and sewer services, utility lines, streets, curbs, gutters, and drainage facilities. Once it has given its approval, however, the municipality needs to see to it that these improvements are in fact installed.

In a third situation, a mining company may lease a property for mining. The lessee/miner mines the property and then defaults on its obligation to

1. Commercial sureties were the first issuers of fidelity bonds to assure the faithful performance of an employee of his or her duties. The bond, the primary document issued by sureties, certifies and evidences the sponsorship of the employee as its principal. nm LAW OF SURETYSHIP 2-28 {Edward G. Gallagher ed., 1993) {noting that the first commercial sureties were established in England in the 1720s to bond servants against their own theft of their masters' property).

2. Another interpretation is 2 0. w. HOLMES, SELECT EsSAYS IN ANGLO-AMERICAN LEGAL HISTORY

718 (1908) ("Out of the giving of hostages, familiar in Caesar's time, grew the guaranty of another obligation.") Thus, it might be said that mortgaged property is held "hostage" for the repayment of the debt.

3. In a large construction project, a general contractor is dependent on the performance of subcontractors in much the same way the owner of the project depends on the general contractor.

1997] Reclaiming the Law of Suretyship 451

reclaim the property after mining. The lessor may then have to step in and reclaim the land before it can be put to some other use. Instead of doing this, the lessor may seek to have another perform the obligation to reclaim the mined-out property.

The solution in each of these three situations is similar. As a matter of prudent business practice, the owner of property about to be improved, the subdivision developer, or the lessor of the mine needing to be reclaimed, will induce some person or firm to add its promise to give the owner, municipality, or mortgagee recourse to have paid or performed the primary obligation of the contractor or miner. This additional promise is known as a surety's bond,4 for either payment ("a payment bond")5 or performance of the principal obligation ("a performance bond").6 When a default occurs, it is said that the bond is forfeited.

The need to finish the construction, or reclaim property after mining, is often a requirement of law. For public construction projects, payment and performance bonds are required by state or federal statute.7 For surface mining reclamation, the same is true. 8 Indeed, various types of statutory bonds are required for many types of public works affecting health and safety. In fact, bonds are statutorially required for money or goods held by a state licensee as a trustee, for business entities and individuals engaged in services found to have been offered to the public in a deceptive or unscrupulous manner, and by entities or individuals who must pay sales taxes to the state, or make other payments including mineral lease payments for mining public lands, or payments to a special fund such as to a bond pool for the reclamation of abandoned mines.9

A. The Definition of a Surety

A surety is a person or firm who assures the payment or performance of an agreement between two other parties. 10 Thus, suretyship is a three-party

4. LAWRENCE P. SIMPSON, HANDBOOK ON TIIE LAW OF SURETYSHIP 2 (1950). 5. JUSTIN SWEEI', LEGAL AsPECTS OF ARCHITECTURE, ENGINEERING, AND TIIE CONSTRUCTION PROCESS

863 (3d ed. 1986). 6. Id. 7. Id. at 862 (to this effect and also referring to the Federal Miller Act, 40 U.S.C. §§ 270a-279

(1994)). 8. 30 U.S.C. § 1259 (l994)(Surface Mining Control and Reclamation Act of 1977, §509) (hereinafter

SMCRA), implemented by 30 C.F.R. § 800 (1995). 9. Maureen D. Cannan, Regulatory and Transactional Bonding: A Primer on Surety Bonding for the

Mineral Lawyer, 17 E. MIN. L. FDN. ANN. INST. (forthcoming, 1996). 10. See W. H. Lloyd, The Surety, 66 U. PA. L. REv. 40 (1918) (discussing the history of sureties).


relationship. 11 It arises between three persons or firms. The first party is the principal, the person or firm with a primary or principal obligation-e.g., a debtor's obligation to repay a construction loan or an owner's obligation to reclaim mined property-and for whose benefit an obligation is undertaken. The principal owes the creditor payment or performance of the obligation, and the surety a duty to pay or perform when the latter is asked to do so by the creditor, but defaults.

The second party is an obligee, a creditor/lender, or a state or federal regulatory agency. The obligee as the second party in the relationship is the person or firm or agency to whom performance of an agreement is promised. The obligee becomes the promisee of both the principal and the surety.

The third party is the obligor (the surety), who assures, guarantees, or sponsors the completion of the obligation if and when the principal defaults.

It is the principal (be it the debtor, the contractor, the lessee of a mineral property, or the operator of the mine) who applies for the bond from the surety and pays the premium for it. However, and particularly when the bond is required by law, the cost of the bond is a cost of conducting a business, such as mining, and so the miner's cost is often passed along to the owner or lessor of the property who thus pays indirectly for the bond.

B. Sureties and Insurers

Suretyship pre-dates insurance.12 A surety bond is not an insurance policy. A surety's bond depends on the underlying contract. For example, a consideration that binds the principal is sufficient by definition to bind a surety. A surety assures an obligee that the party with whom it deals is financially responsible and has the technical expertise to perform its obligations. A surety guarantees that responsibility and performance and will seek reimbursement from its principal, upon whom it has written the bond. Absent agreement to the contrary, when the surety is compelled to pay the principal's debt, it has a right to reimbursement from the principal, even though there is no express agreement to this effect.

11. SNML Corp. v. Danie of N.C., 254 S.E.2d 274, 279 (N.C. Ct. App. 1979). See generally A. STEARNS, THE LAW OF SURElYSHIP, § 1.4 (5th ed. 1951). The first edition of the Stearns treatise was copyrighted in 1903; See W. H. Woods, Historical Development of Suretyship, in THE LAW OF SURElYSHIP 2-21-2-34 (Edward G. Gallagher ed. 1993) (reviewing the rise and organization of the sureties industry).

12. W. H. Woods, Historical Development of Suretyship, in THE LAW OF SURElYSHIP, 2-1- 2-5, 2-10 (Edward G. Gallagher ed. 1993).


In contrast, an insurer makes an independent agreement (an insurance policy) with its insured. It agrees to indemnify a person or firm against a risk that an event will take place, subject to the terms and conditions of its policy. The insurer distributes the insured risk among all those persons or firms that purchase insurance-that is, among all its insureds. Insurance is thus a riskspreading device, but an insurer does not (and cannot by law) seek to recover its own loss from its insured. An insurer owes no debt or obligation to a third party. An insurance policy creates a two party relationship.

One further contrast in the foregoing definitions is worth highlighting: a surety agreement is a guaranty, while an insurance policy is an indemnity. A guarantor or surety's liability begins when the principal defaults, while an indemnitor or insurer's liability begins only when the insured suffers a loss. 13

For principals, then, seeking to recover from an insurer is preferable to seeking recovery from a surety, on at least one ground: that is, that sureties will in tum seek recovery from them, while an insurer will not. For example, when a property has been reclaimed, but the reclamation is defective so that it pollutes adjoining land, a polluter's insurance claim is preferable to a claim on the reclamation bond applicable to the site.

On the other hand-and particularly, although not exclusively, from the obligee's perspective-recovery from a surety may be preferred because it is easier to show a default than it is to show a loss. The surety becomes liable contemporaneously with the principal. In this situation, the claims process is less complicated in that a claim of default need not be followed with a claim of loss. Thus, when losses are neither immediate or obvious, but are on the contrary, difficult to show, suretyship is preferable to insurance.

C. Guaranties, Warranties, and Sureties

Today, the words "guaranties," "warranties," and "sureties" are used interchangeably, but they originally had different meanings. Both a guaranty and a warranty are agreements to make an obligee whole against the default of a principal, but they apply to different subjects. A guaranty is a collateral and conditional warranty against some default arising in the future, whereas a warranty is understood as an absolute undertaking in the present as well as in the future. Thus a warranty assures the quality and quantity of, or title to, the subject of an agreement, but a guarantee binds a third party for the principal's fulfillment of an agreement.

13. As with an insurance policy or an indemnity, the on-set of a surety's liability is subject to the requirements of notice given the surety or guarantor, typically as specified in the bond.


Sureties are super-guarantors. A guarantor recognizes the obligation of the principal as a pre-existing one and undertakes to pay it when the latter cannot pay or perform. A guaranty is the lending of credit to aid a person who has insufficient credit on her own and a guarantor in effect assures the solvency of the principal. The guarantor says to the creditor, "you will be able to collect this debt, or can expect this performance from the principal." This assurance is based on a separate, independent contract and requires its own new and independent consideration.14 A suit against the principal, diligently filed and pursued, may be necessary to determine this: the guarantor says, "sue the principal first, and if the judgment from this suit is not satisfied, I will pay." A guarantor cannot in this sense be sued jointly and severally as a defendant with the principal.15

A surety can be so joined because it says and does more. A surety joins with the principal in her contract and becomes immediately more than a guarantor, but undertakes absolutely the principal's obligation, 16 whether or not the latter can pay or perform or is solvent. It is as if, when the surety undertakes to pay the principal's debt, it attaches a certified check to its bond. Thus a surety's liability potentially begins with the principal's agreement, at the execution of which the surety says, "when the principal does not pay or perform, I will."17 In this sense, one of the generally recognized functions of a surety is to save the obligee the delay, cost, and inconvenience of enforcing the obligation against the principal. This in tum gives the surety a concomitant latitude to pay or perform over the protest of the principal. 18

14. There are three exceptions to this rule. See EARL C. ARNOLD, OlITUNES OF SURETYSHIP AND GUARANTY 11-12 (1927) (noting three exceptions when (1) the guarantor requests the agreement with the principal and the guaranty is made after the principal's agreement is made; (2) the guarantor induces the creditor to make the agreement with the principal; or (3) the guarantor's agreement is the basis of the agreement made with the principal).

15. Butte Mach. Co. v. Carbonate Hill Mining Co., 242 P. 956, 957 (Mont. 1926) ("A creditor may bring an action jointly against a surety and a debtor, but he cannot join both the guarantor and the debtor in one suit because there is neither privity of contract, mutuality, nor joint liability between the principal debtor and his guarantor.").

16. Keames v. Montgomery, 4 W. Va. 29, 40 (1870) ("[T]he surety undertakes directly for the payment, and so is responsible at once if the principal debtor makes default.").

17. There is a corollary here, of course: that is, when the principal tenders payment or performance, the obligee cannot refuse it and instead continue to hold the surety liable when a reasonably prudent business person would accept. A surety only assures an obligee against a default from which an exercise of prudence will not save her. LAURENCE P. SIMPSON, HANDBOOK ON TIIE LAW OF SURETYSHIP 3 (1950).

18. Hinchey, Surety's Performance over Protest of Principal: ConsideraJions and Risks, 22 TORT. & INS. L.J. 133, 134 (1986).


Thus, a guarantor undertakes to pay or perform when the principal cannot. A surety undertakes to pay or perform when the principal does not. 19 This suggests that the surety typically is familiar with the business of the principalbe it construction of a building or the mining of coal.

Thus, too, a guaranty agreement is a contract in and of itself, but a surety bond is an obligation that is as absolute to pay as that of the principal. 20

"[W]hen the sponsors for another assume a primary and direct liability, whether conditional or not, in the sense of being immediate or postponed till some subsequent occurrence, to the creditor, they are sureties."21 Every surety is also a guarantor, and more.22 Every guarantor need not rise to the level of a surety.

D. The Regulation of Sureties

A surety's bond is the instrument evidencing and certifying its obligation. While a surety bond is not an insurance policy, its issuance has required regulation, and modem professional sureties are regulated by state insurance departments or commissions.23 Generally, state insurance codes authorize insurers to act as sureties as well as insurers, although the underwriting principles used are different for a regulated business performing both functions. Rates are typically regulated as well, based on a maximum percentage of the face amount of the bond.

To qualify as a surety with regard to federal construction projects, Department of the Treasury regulations prescribe financial requirements, correlate the financial capacity of the surety with the size impose a ceiling on the single risk and financial exposure of any one surety as well as impose cosurety requirements.

E. Surety and Contract Law

Sureties typically undertake their obligations in an express, written

19. See Saint v. Wheeler and Wilson Mfg. Co., 10 So. 539 (Ala. 1892), quoted and discussed in ARNOLD, supra note 14.

20. Saint, 10 So. at 541. 21. Id. (the coun continued by stating, " ... but when this responsibility is secondary, and collateral

to that of the principal, they are guarantors."). 22. See RESTATEMENT OF nrn LAW OF SECURITY, Div. II, § 82 cmt. g (1941) (defining the words

guaranty and surety interchangeably); see also SIMPSON, supra note 4, at 16 (defining a surety to include both a guaranty and surety).

23. See, e.g., Dodge v. Fidelity and Deposit Co. of Md., 778 P.2d 1240 (Ariz. 1989) (including sureties under the state insurance code and as so regulated, subject to a duty of good faith to an obligee).


contract. The law of suretyship is a species of the law of contract. When the law of suretyship provides no principle or rule to guide the interpretation of a bond, the general law of contract fills the gap. In addition, a statute can control the substance of a bond.

A suretyship agreement is subject to the Statute of Frauds. In the original English Statute of 1677, section 4 provides that a promise "to answer for the debts, defaults, or miscarriages of another person," shall be in writing.24 Thus, without a writing the surety is not liable; otherwise, a surety would be liable for impulsive oral promises, made without due deliberation.25 The original statute was enacted in an age when sureties were likely natural persons, not business entities and professional sureties. The individual nature of most sureties accounts for some of the legal rules indigenous to this field of law. 26

A surety relationship is imposed by law in three circumstances familiar to real estate attorneys. Here it may be said to arise by operation of law, not only to preserve the rights of contracting parties, but also to permit free alienability of title. The first circumstance deals with the sale of mortgaged property. When a mortgagor sells real property to a grantee who assumes the mortgage, the mortgagor becomes a surety for the repayment of the mortgage debt. Likewise, a lessee who assigns a lease becomes a surety for the obligations of the lease's assignee to the lessor. In the same way, a retiring general partner becomes a surety for the obligations of the partnership incurred during the time the retired partner was active in the partnership.

A commercial surety's agreement is strictly construed against it, as the offeror of the bond, and liberally construed in favor of the principal. In one well-known case, even an agreement to the contrary left this canon of construction unaffected.27 Whether this would be the result when interpreting a reclamation bond is an open question. A surety also has subrogation rights. Once a surety has paid the obligation to the obligee, it is subrogated to the obligee's rights against payees.28

24. ARTiiUR L. CORBIN, CONTRACTS 397 (1952); Burdick, Suretyship and the Statute of Frauds, 20 COLUM. L.REV. 153 (1920).

25. SWEET, supra note 5, at 860. 26. Id. (suggesting that the early rules protective of sureties originated at a time when sureties were

individuals, often members of the principal's family). 27. Trustees of Methodist Episcopal Church v. Equitable Sur. Co., 112 A. 551, 552 (Pa. 1921), noted

in ARNOLD, supra note 14, at 366-67. 28. ARNOLD, supra note 14, at 379-80.


F. Discharge of the Surety

In addition to the protection afforded sureties by the Statute of Frauds, the rule that sureties are completely discharged when and if the obligee, without the surety's consent, alters the obligation of the principal, afforded additional protection at common law. The discharge effected by the alteration is at law a suspension of the legal remedies against the surety. Thus, when a creditor extends the time for payment or performance of the obligation by the principal, releases collateral,29 or otherwise alters the obligation, the surety is discharged. A discharge also occurs when the obligee releases the principal or covenants not to sue, but this might be explained more easily by the termination of the agreement on which the surety's duty is founded. With regard to a payment bond or guaranty, even giving an unconditional guaranty is insufficient, by itself, to waive the discharge rule when the collateral of the principal is impaired. 30

Three modifications made to the discharge rule have, over time, reflected the shift toward professionalism and commercialism on the part of sureties.31

First, the total discharge has sometimes become a partial one, to the extent of any prejudice or increased exposure caused the surety. 32 Second, the alteration in the obligation must be a material or substantial one. Third, the surety is sometimes assigned the burden of proof to show that the alteration is prejudicial to the surety's interests before any discharge will be granted.33

The modem rationale for the rule of discharge, whether total or partial, is that the obligee who alters the obligation thereby alters the value of the right to reimbursement held by the surety as it is understood when the surety agreed to write the bond for the principal's obligation. This is a thoroughly modem commercial justification for the rule. The surety is entitled to its bargain and that bargain is not subject to alterations made without its consent.

29. This is a problem in the case of a payment bond. 30. Langeveld v. LR.Z.H. Corp., 376 A.2d 931, 935 (N.J. 1977), discussed in D. Rapson, The

Restatemenl of Suretyship: History and Background of the Restatemenl of Suretyship, 34 WM. & MARY L.REv. 989, 993-1001 (1993) (noting that the case involved a guaranty of payment in the form of a negotiable note and did not use the word "unconditional," but rather stated that the guarantor agreed to be principally liable).

31. For a short review of the rise of the surety industry, see ARNOLD, supra note 14, at 359-61. 32. Farmers Loan & Trust Co. v. Letsinger, 652 N.E.2d 63, 65-66 (Ind. 1995). 33. See, e.g., Winston Corp. v. Continental Cas. Co., 508 F.2d 1298 (6th Cir. 1975) (imposing on a

surety issuing a construction performance booo, a duty to show that the alteration in the principal' s obligation was prejudicial to the surety's interests).


G. Surety Good Faith

The law of suretyship is "managed" by two legal communities. The first consists of counsel, often in-house corporate counsel, for the sureties themselves. The second is counsel who customarily represent commercial lenders interested in credit enhancement. These are the drafters of guaranty agreements, letters of credit, and other enhancement agreements. Principals often impose the duties of insurers on the first group, but when the second group (primarily representing obligees) attempts to take advantage of this, they are sometimes rebuffed. This dichotomy can be seen in the issue of whether a surety has a duty of good faith and fair dealing. Generally, this issue also provides another indication of the growing commercialism of sureties.

First, an implied duty of good faith and fair dealing is placed ori sureties in dealing with principals.34 Such a duty is implied in many types of contracts today.35 It is often applied to insurers, and by analogy to sureties dealing with principals.36 However, not all courts apply it to sureties,37 particularly when the surety has not investigated and so familiarized itself with the bonded project and has paid or performed in any event. 38 There is more than a little 20/20 judicial hindsight Nonetheless, good faith in this last context might mean merely an absence of fraud when the surety pays the obligee and the principal objects to the payment,39 or that the duty might be limited by the express terms of the bond.40

One court has rejected the analogy of sureties to insurers, and so refused to impose the same duty of good faith and fair dealing imposed on the latt~r in

34. See, e.g., Dodge, 778 P.2d at 1240 (finding a duty of good faith to an obligee in a state insurance code); Trinity Universal Ins. Co. v. Gould, 258 F.2d 883, 886 (10th Cir. 1958) (holding a surety liable in spite of substantial alterations in the principal' s obligation when the surety knew of them, but did not object to them, and holding that the principal was owed a duty of good faith going beyond arm's length fair treatment); see also Winston Corp. v. Continental Casualty Co., 508 F.2d 1298 (6th Cir. 1975) (finding a surety's refusal to attend alteration conferences called for in an AIA construction performance bond was a defense against the surety's discharge when the surety was given notice of the alteration, and imposing on the surety a duty to show that the alternation was prejudicial to the surety's interests).

35. The Hartford v. Tanner, 910 P.2d 872 (Kan. Ct. App. 1996). 36. Id. 37. Id. (reviewing the cases in the situation of principal-surety dispute). 38. Id. (finding that payments were not made by the surety in good faith). 39. United States Fidelity & Guar Co. v. Napier, 571 S.W.2d 644, 646 (Ky. Ct. App. 1978)

(suggesting that the principal-surety relationship is akin to a debtor-creditor one to which no duty of good faith attaches).

40. Hess v. American States Ins. Co., 589 S.W.2d 548, 551 (Tex. Civ. App. 1979).


the context of a obligee-surety dispute.41 The North Austin opinion involves a governmental entity's construction bond. It found that three aspects of the insured-insurer relationship are not present by analogy between the obligee and the surety. That is, neither (1) unequal bargaining power, nor (2) the nature of the agreement, nor (3) control over the claims' evaluation process, justified the analogy when respectively (1) the form of the bond was mandated by a government obligee, (2) the obligee has a choice of remedies against both the principal and the surety, and (3) the surety has all defenses available to the principal; and any defense releasing the principal also releases the surety. Moreover, the surety's function is unique, predates the advent of the insurance industry, and is fundamentally different from an insurer's in that no risk-pooling and spreading is involved. Rather, a more individualized investigation of risk, and the right to reimbursement, distinguish the suretyship process. 42

Claims on the bond typically must be made within a period of time stipulated in the bond itself. This claims period is usually shorter than the applicable statute of limitations, and if reasonable, then it is enforced. 43

However, the claims period cannot be shortened by the parties when the result would be unconscionable. 44

H. The Surety's Right to Reimbursement

Sureties are not insurers and do not expect to take a loss. As a general rule, sureties have all the defenses that a principal may assert to avoid performance on the bond. The terms and conditions of the bond also protect them. If, however, the sureties do perform, they have the right to seek reimbursement from the principal for the reasonable costs of performance.45 Sureties are extremely aggressive and litigious in this regard.

The underlying difficulty is that, as a practical matter, the right to reimbursement is limited because the surety's judgment is often uncollectible. Typically, a defaulting principal is not financially capable of making reimbursement.

41. Great American Ins. Co. v. North Austin Mun. Util. Dist. No. 1, 908 S.W.2d 415 (Tex. 1995). 42. Id.; see also Woods, supra note 12, at 2-34-2-41 (questioning the analogy between insurers and

sureties in early 20th century cases). 43. Rumsey Elec. Co. v. University of Del., 358 A.2d 712 (Del. 1976) (enforcing a one year claims

period stated in the bond when the applicable statute of limitations was three years). 44. City of Weippe v. Yamo, 486 P.2d 268 (Idaho 1971). 45. Lumbermens Mutual Cas. Co. v. Agency Rent-A-Car Inc., 180 Cal. Rptr. 546 (4th App. Dist.

1982) (finding that a bond is not an insurance policy, and so the surety is entitled to reimbursement).


Thus, a surety often will require guaranties. Guarantors who reimburse the surety have all the claims of the principal, regardless of any pre-existing privity of contract with the latter.46

II. THE DEVELOPMENT OF RECLAMATION BONDS

Prior federal and state statutes, as well as some problems with common law remedies regarding unreclaimed land, foreshadowed the enactment of the bonding requirement in the federal Surface Mining Control and Reclamation Act. The use of bonds was also influenced by the disfavor into which surface mining was cast throughout the decade-long legislative history of the Act. That history was so influenced by environmental horror stories that only a financial device (fidelity bonds) associated with the untrustworthy would suffice.

A. Statutory Antecedents

When in the early 1900s portions of the public domain were acquired by private parties for mining, the primary use of the surface was for grazing47 or crops. 48 Thus, the public domain miners were required to post a surety instrument to secure payment of damages to crops or other improvements.49

Agriculture and livestock were protected uses for purposes of settling much of the West,50 and the continuance of these uses were protected by sureties when mining threatened them.51 Bonds to protect both were filed with the Secretary of the Interior. In the 1930s, the mineral reservation under the Taylor Grazing Act continued this tradition. 52

46. Westerhold v. Carroll, 419 S.W.2d 73 (Mo. 1967) (involving a suit against an architect and a bond issued for the work of a general contractor who defaulted on a construction agreement).

47. The Stock Raising Homestead Act of 1916, 43 U.S.C. §§ 291-301 (§§ 291-298 repealed 1976). 48. The Agricultural Entry Act of 1914, 30 U.S.C. §§ 121-124 (1994). 49. See, e.g., Kinney-Coastal Oil Co. v. Kieffer, 1 F.2d 795, 797 (Wyo. 1924), affirmed, 277 U.S.

488 (1928) (holding that the term crops refers to agricultural crops). 50. Howard A. Twitty, Law of Subjacent Support and the Right to Totally Destroy Surface in Mining

Operations, 6 RocKYMTN. MIN. L. INST. 497, 514 (1961), cited in Belle Fourche Pipeline Co. v. State, 766 P.2d 537, 544 (Wyo. 1988).

51. See 30 U.S.C. §121 (1994) (Agricultural Entry Act provision); 43 U.S.C. § 299 (1994)(Stock Raising Act provision).

52. Taylor Grazing Act of June 28, 1934, Ch. 865, §8, 48 Stat. 1269, codified at 43 U.S.C.A. § 299(e) (1996).


On the state level, pre-SMCRA state statutes also used surety bonds.53

Liability on the bond accrued "in proportion to the area of land affected by the surface mining" at a set amount per acre.54 Statutorily-required bonds to compensate surface owners and users were the pre-cursors of reclamation bonds.55

B. Antecedent Case Law

Pre-SMCRA law did not recognize the environmental values inherent in reclaiming the surface. When the mineral lease or deed was silent on the matter, reclamation costs for the post-mining surface were awarded only when the costs of reclamation were less than the fair market value of the land after mining. This accorded with the standard rule measuring damages: that is, the surface owner was awarded the lesser of either the replacement cost of the surface (its reclamation cost) or the decrease in its fair market value. Thus, if the reclamation cost was significantly higher than the surface's decrease in value, recovery of reclamation costs was denied the surface owner, who was limited to diminution damages.56

Even when (1) the surface mined was a large percentage of the surface owned by the plaintiff, and where (2) the mineral lease for a farm contained both (a) a recognition that surface mining was to be the method of extraction and (b) an express duty to reclaim the surf ace, one court found that the surf ace owner would receive an economic windfall by measuring the damage to the surface by the cost of performing reclamation work on it. In this case, the cost of reclamation was $29,000, while the decrease in the fair market value of the surface was only $300. Thus, the court found the cost of performance greatly disproportionate to the benefit the surface owner received. The court ignored the

53. See, e.g., 1969 Wyo. Stat., ch. 192 (repealed 1972) (using a bond payable to the state Commissioner of Public Lalxls, replaced by the Wyoming Environmental Quality Act, ch. 250, § 1, Wyo. Stat.§§ 35-11-101-1428 (1977 & Supp. 1996)).

54. Department of Envtl. Resources v. Ogden, 501A.2d311, 313 (Pa. Commw. Ct. 1985) (describing the rolling or reverse terms of the surety's liability).

55. See generally Commonwealth v. Resolute Ins. Co., 222 A.2d 122 (Pa. 1966) (upholding a confession of judgment against a surety); In re Appeal of Harasty, 40 Pa. D. & C.2d 795 (1966) (involving the timeliness of an appeal from forfeiture order).

56. See, e.g., Peevyhouse v. Garland Coal & Mining Co., 382 P.2d 109 (Okla. 1962) cet1. denied, 215 U.S. 906 (1962); see also A. FARNSWORTII, CONTRACTS 873 (1982); also noted in Comment, 49 IOWA L.REv. 597 (1964); Comment, Environmental Law: Comparing the Effectiveness of Oil and Gas wilh Coal Surface Damage Statutes in Oklahoma: Bondilig Producers and Operators to Land Reclamation, 46 OKLA. L. REv. 291, 293-95 (1993). For a case reviewing the cases citing Peevyhouse, see Miller v. C.K.L. Inc., No. 88 Ca 6, 1988 WL 106637 (Ohio App. Oct. 6, 1988). Peevyhouse is a casebook staple. See, e.g.' R. ScOIT & D. LESLIE, CONTRACT LAW AND TuEORY 776-84 (2d ed. 1993).


lease's express duty to reclaim the surface for agriculture, and awarded only $300 in diminution damages.57

The Peevyhouse result was troubling because, as one earlier federal court opinion suggested, neighboring landowners have greater protection under the law of nuisance than does the surface owner from the mineral lessee.58

Bonding requirements in the federal Surface Mining Control and Reclamation Act and related state statutes thus did two things. First, they adopted the idea of federal and state surface-damage bonds. Second, they changed both the result in cases like Peevyhouse and the disparate treatment of neighbors and surface owners, putting surface owners on a par with their neighbors.

C. SMCRA

The Surface Mining Control and Reclamation Act (SMCRA, or the Act) is a complex statute and has produced litigation of immense complexity.59 It required the Secretary of the Interior to develop interim and then permanent regulations to regulate the surface mining of coal as well as the surface subsidence impacts of deep coal mining. The Secretary's interim program was in place in 1978.ro The final regulations were intended to govern in the absence of state regulation, later approved, that was not inconsistent with and no less stringent than the federal program. The final program regulations were released

57. Peevyhouse, 382 P.2d at 114. 58. Garland Coal & Mining Co. v. Few, 267 F.2d 785 (10th Cir: 1959) (applying Oklahoma law). 59. Litigation over interim regulations occurred first. See, e.g., In Re Surface Mining Regulation

Litigation, 452 F. Supp. 327 (D.D.C.); 456 F. Supp. 1301 (D.D.C. 1978), ajf'd in part and rev'd in part, 627 F.2d 1346 (D.C. Cir. 1980). Then came judicial challenges to the permanent regulations. See In Re Permanent Surface Mining Regulation Litigation, 13 Env't Rep. Cas. (BNA) 1586 (D.D.C. 1979) (ruling on motions for a preliminary injunction); 14 Env't Rep. Cas. (BNA) 1083 (D.D.C., Feb. 26, 1980); 19 Env't Rep. Cas. (BNA) 1477 (D.D.C., May 16, 1980), ajf'd and rev'd in part, 653 F.2d 514 (D.C. Cir. 1981) (en bane), cert. denied, 454 U.S. 822 (1981). A second and third round of challenges to the permanent regulations reflected changes in the pennanent regulation made by the Reagan administration; they were the subject of four opinions by Judge Flannery. See 21 Env't Rep. Cas. (BNA) 1193 (D.D.C., July 6, 1984); 21 Env't Rep. Cas. (BNA) 1724 (D.D.C., Oct. 1, 1984) (Round II); 22 Env't Rep. Cas. (BNA) 1557 (D.D.C., Mar. 22, 1985) (Round III-VER), and, 620 F. Supp. 1519 (D.D.C. 1985) (Round III), rema11ded on issues of standing, No. 79-1144 (Memo. Opin., D.D.C., Aug. 10, 1987), ajf'd in part and rev'd in part, National Wildlife Fed'n v. Hodel, 839 F.2d 694 (D.C. Cir. 1988). A fourth round of challenges was decided in 1990. See National Wildlife Fed'n v. Lujan, 733 F. Supp. 419 (D.D.C. 1990), and, 31 Env't Rep. Cas. (BNA) 1617, 1990 U.S. Dist. LEXIS 8869 (D.D.C., June 8, 1990), and, 31 Env't Rep. Cas. (BNA) 1617 (1990); 31 Env't Rep. Cas. (BNA) 2034(1990).

60. In Re Surface Mining Regulation Litigation, 452 F. Supp. 327, 331 (D.D.C. 1978).


by the Interior Department on March 13, 1979.61 Challenges to the final regulations by both environmental groups and the mining industry were promptly filed. 62

SMCRA provides that surface land affected by surface mining should be restored to a condition equal to or greater than its condition prior to any mining operation. 63 In order to assure the complete restoration of the surface, reclamation performance bonds are required under section 509 of federal SMCRA.64

This federal requirement is also a requirement of state primacy. 65 Of the 27 states with permitted surface mining operations, 25 have regulatory programs approved by the Office of Surface Mining and as approved have primacy. The remaining two rely on SMCRA's program to regulate surface mining within their borders.66

Congress' imposition of bonding requirements envisioned a new market for surety bonds. When it thought that, in a market for a particular type of coal, one would not develop, it took care to exempt that coal market from SMCRA's bond requirements. For example, it provided for special bond limits for anthracite coal mines67 and for the continuation of state limits in effect at the effective date of the Act. Coal cleaning and processing near the mine site may be separately bonded.68

61. In Re Pennanent Surface Mining Regulation Litigation, 14 Env't Rep. Cas. (BNA) 1083 (D.D.C. 1980) (Flannery, J.).

62. The enabling starute for challenges is 30 U.S.C. § 1276(a)(l) (1994) (requiring that challenges to SMCRA regulations be brought within (JO days of release in the federal district coun for the District of Columbia, which is where Judge Flannery acquired his expertise in interpreting the Act).

63. See 30 U.S.C. § 1265(b)(2) (1994). 64. See 30 U.S.C. § 1259 (1994); see also 30 C.F.R. § 800 (1995)(promulgated pursuant to 30 U.S.C

§ 1259). 65. "State primacy" refers to the period of time during which a state's surface mining regulatory

program has the primary role in the enforcement of surface mining stab.lies and regulations in accordance with federal guidelines. During this period, the federal government, through the Office of Surface Mining (OSM) in the United States Depanment of the Interior, assumes an oversight function. For three representative state reclamation bond starutes see KY. REv. STAT. ANN. § 350.064 (Banks-Baldwin 1996); 225 ILCS 720/6.01 (Smith-Hurd Supp. 1996); Mo. ANN. STAT. § 444.830 (Vernon 1996).

66. Another state, Oklahoma, achieved primacy. Nevenheless, after the bankruptcy of a corporate surety who wrote the bonds for 32 mines, mining virtually ceased for a time. Jerome Ashton, OSM Says Bond Firm Failure Hurts 12 States, INSIDE ENERGY, Nov. 4, 1985, at 1. Partly in response to this re-bonding crisis, OSM in 1984 reasserted federal regulatory control in Oklahoma, only to relinquish it again three years later in October, 1987. OSM Recertifies Oklahoma; SMCRA Enforcement Returned to State, 13 COAL WEEK, Oct. 19, 1987, at 7.

67. Arsenal Coal Co. v. Commonwealth, 477 A.2d 1333, 1335 (Pa. 1984) (enjoining regulations for anthracite mines and citing SMCRA, § 529(a)).

68. Al Hamilton Contracting Co. v. Dept. of Envtl. Protection, 680 A.2d 1209, 1211 (Pa. Commw. Ct. 1996).


ill. THE REGULATION OF SMCRA BOND TERMS AND CONDITIONS

Bonding requirements have figured in three of the four main rounds of challenges to the Secretary of the Interior's authority to regulate surface coal mining.

In an early decision generally reviewing the Secretary's authority to issue regulations, the federal Circuit for the District of Columbia found that the Secretary's rule-making authority was a substantive provision of SMCRA.69

Labelling it as such meant that the federal and state regulators could seek information from applicants for permits to conduct surface mining operations not expressly authorized by or mentioned in the statute.70 The need for a uniform pattern of regulations and federal oversight of state programs required this. 71 Among other types of information potentially authorized was information about the bonding and financial history of applicants, their default rate on prior bonds, and the terms and conditions of the bonds themselves. 72 This decision did not authorize any particular regulation on bonding or any other subject, but nonetheless opened the way for a far-reaching assertion of regulatory powers.

A. Round I (Judge Flannery's Courtroom)

SMCRA's regulations governing surety bonds were first reviewed in 1980. Over the industry's objection, an initial permanent regulation required the discontinuance of mining when the surety became insolvent or unlicensed by state regulators. This requirement was suspended by the time of judicial review.73 The suspension was in tum implemented by court order.74 Over the objection of environmental groups, a similar suspension and order was the death knell for a regulation on bond liability for the permit area to restore its hydrologic balance.

One regulation on the procedures governing public participation in bond

69. In Re Permanent Surface Mining Regulation Litigation, 653 F.2d 514 (D.C. Cir. 1981), cert. denied sub nom., 454 U.S. 822 (1981).

70. Id. at 522. 71. Id. at 525. 72. See, e.g., Burns v. Dials, 378 S.E.2d 665, 666 (W. Va. 1989) (upholding a state regulation

authorizing additional information on SMCRA violations of subsidiary, affiliate, and controlled business entities; finding an application incomplete under the regulation; and stating: "Obviously, an applicant's history of compliance ... is an important factor in the Commissioner's decision whether to issue a permit.").

73. In Re Permanent Surface Mining Regulation Litigation, 14 Env't Rep. Cas. (BNA) 1083 (D.D.C. 1980).

74. Id. (citing order of Dec. 21, 1979).


releases was remanded to the Secretary. The court found that he had failed to articulate why, when written objections to a release were filed, the objectors should not be given access to the mine permit area before the informal conference authorized by Congress to resolve the objections.75 Such access may be critical to a well-informed objection, but when the bond has previously been invoked or forfeited, should not interfere with the on-going work of the operator or the surety, lest the surety object that it cannot carry out its pre-release duties under the bond and gain a defense to further performance.

Another regulation involved a more basic feature of the Act. The industry argued that the regulatorys' use of bond forfeiture as an enforcement action was inconsistent with the Act. While one might reasonably ask who else would seek forfeiture, the industry argued with a straight face that regulatory citations and mine closure were the only such tools expressly authorized in the Act.76 The regulation provided that forfeiture occurred when the permittee failed to meet the conditions on mining imposed by the Act. The court found this regulation consistent with section 509(a)'s requirement of "a bond for performance ... conditional upon faithful performance of all the requirements of this Act and the permit." Congress, not the regulators, thus established the conditions upon which the bond was triggered.

Nonetheless, the court characterized the issue as one of timeliness. The forfeiture attaches only on violation of the Act, and moreover, the violation does not result in an automatic forfeiture under the regulation. Instead, the regulators can waive forfeiture when the permittee accepts a schedule to bring the mine area into statutory compliance once more. "Thus, if a permittee fails to abate, fails to agree to an abatement schedule, or fails to meet the abatement schedule, the regulatory authority may forfeit the bond and implement abatement."77

The characterization of this issue as one of timeliness in effect turned the challenge to the forfeiture regulation into a facial, prima facie one. When and if the schedule for a specific, as · applied, pre-forfeiture abatement was challenged, that would be time enough to review the regulation further. In the meantime, the court trusted the parties to such a proceeding to "work it out."

The federal district court then cut back the impact of this regulation with regard to the amount of the bond forfeited. Under the proposed regulation, the regulators could use one of two methods to calculate the amount of the forfeiture. First, they could estimate the cost of reclamation and so forfeit that amount of the bond. Second, they could forfeit the entire amount of the bond

75. Id. (implementing am hannonizing §1263(b), providing for mine access amid informal conference procedures, and § 1269(g), providing for written objections and informal conferences).

76. Id. (citing SMCRA, § 521). 77. Id. The procedures of many states call for informal conferences at this stage.


and deposit the proceeds in an interest bearing, escrow account for the use of all reclamation activities associated with the program, whether or not related to the bonded permittee's mine area, retaining any amount ultimately unneeded to reclaim that area.

The choice of one of these two methods probably would not long detain regulators. They could either make an estimate of the cost of reclamation and forfeit the bond partially, or forfeit the whole. Adopting the second course allowed them to skip the process of formulating an estimate, thus rendering it a regulatory make-work project.

Section 509, the court found, provided no statutory basis for forfeiting and retaining any bond amount unnecessary to implement and complete the permittee's reclamation plan. Section 509(a) provided that "the amount of the bond should be sufficient to assure the completion of the reclamation plan." This language indicates that the amount is to be calculated on the amount of reclamation needed, not the needs of the state's regulatory program. It does not provide the state with a hedge against insufficient funds or a draw-down account for its regulatory program. The court, however, ignored the fact that the bond could be conditioned on performance of the statutory requirements "and the permit." The court remanded this aspect of the regulation to the Secretary, suggesting nonetheless that excess costs be reimbursed after reclamation was complete.

This suggestion indicates that the court thought that there was a regulatory due process issue lurking in the regulation as written. It did not, the court probably reasoned, bear a reasonable relationship to the statutory objective for the bond. Lacking that nexus, the regulation was too broad.

Judge Flannery's suggestion is, however, arguably inconsistent with prior law-more precisely, while it is arguably consistent with the law governing payment bonds, it is inconsistent with performance bonds. Consider the following scenario. A mine permittee ceases operations in mid-cut. The surety78

steps in, expends money to keep the operation going, and the permits alive, so that the mining reaches a point at which the seam is sealable and reclamation is cheaper and more effective. Must the surety account to the principal for the profit made from its mesne mining? With the exception of one case,79 the better

78. The surety is arguably the agent of the principal. ARNOLD, supra note 14, at 250. As an agent, the surety must act reasonably in the principal's stead, and not speculate at the latter's expense. Reed v. Norris, 40 Eng. Rep. 678 (1837). Whether it can exercise rights under the permit without prior regulatory clearance is for present purposes an open issue.

79. United States Fidelity & Guar. Co. v. Worthington & Co., 6 F.2d 502, 503 (5th Cir. 1925); see also Comment, The Extent of the Subrogees Remedy, 35 YALE L.J. 484, 486 (1926).


answer seems to be no. 80 To hold otherwise will encourage principals to default, leaving the surety to complete the job to the benefit of the defaulting party.

A slight change in the legal environment in the foregoing scenario arguably changes the result. If the state receives the whole amount of the forfeited bond and then hires the reclamation company, paying it less than the whole amount, is the principal entitled to the difference? One case has decided that the answer is yes. 81 The rationale for this result, one based in the law of suretyship, is that the principal needs the full amount of the bond to settle the surety's later suit for reimbursement on the amount it was forced to pay the regulators.82 This case was, however, decided without express statutory (as opposed to regulatory) guidance on the issue.

In the light of recent developments, 83 it may be better as a matter of policy to hold the surety has a right to reimbursement against the regulators, but that the principal does not, thus eliminating the need for the regulation involved in the Dishner opinion and the possibility of further litigation on this issue.

B. Round II (Judge Flannery and the Circuit Court)

Among corporate sureties, there was initial enthusiasm for writing reclamation bonds. In 1982, forty-six such sureties were participating in the market for these bonds. Four years later, only twenty-six were doing so.84 The reason given in the industry for the decline was a vacillating approach by state and federal regulators.85 Moreover, the sureties remaining in the market were imposing high collateral requirements on principals-sometimes as high as 50% of the amount of the bond-and also requiring letters of credit or certificates of deposit as additional assurances of reimbursement.86 Thus, principals had

80. See ARNOLD, supra note 14, at 381 (criticizing the Worthington opinion as likely to Kencourage principals to default, leaving the surety the trouble of completing the contract, and if a profit is realized, compel an accounting.").

81. General Trucking Corp. v. Dishner, 464 S.E.2d 545, 548 (Va. Ct. App. 1995) (citing Virginia surface mining Reg. §480-03-9.800.50(d)(2) to this effect, that the principal Kis entitled to any forfeited proceeds that are not used to complete reclamation."). Dishner did not cite the leading suretyship case on the subject of the regulation before it, although the case is in accord with the regulation. Worthington, 6 F.2d at 502.

82. Dishner, 464 S.E.2d at 548. 83. See, e.g., PA. STAT. ANN. Tit. 52, §1396.4 (West 1996), amended ITy 1996 Pa. Legis. Serv. Act

43 § 4 (Purdon) (involving the re-mining of unreclaimed land). 84. AML Funds Seen as Possible Answer to Reclamation Bonding Crisis, INSIDE ENERGY, March 23,

1989, at 12 (reporting also that this Kcrisis" was especially pronounced for small operators). 85. Id. 86. Id. (reporting the 50% collateral requirement in the Ohio coalfields). See also JAMES M. MCELFISH

& ANNE. BEIER, ENVIRONMENTAL REGULATION OF COAL MINING: SMCRA'S SECOND DECADE 96-98, 111, 118 (1990) (questioning the adequacy of the face amounts of many bonds).


considerable amounts of cash/and credit tied up in transactions relating to their reclamation bonds.

In 1984, while the number of sureties willing to write reclamation bonds was decreasing, Judge Flannery rejected Secretary Watt's 1983 regulations authorizing the use of both incremental and phased bonding of surface mines. 87

Incremental bonding is the provision of surety bonds for an area less than the entire mine, or less than the mine area permitted at any one time, so long as they are "independent increments of sufficient size and configuration to provide for efficient reclamation operations."88 Judge Flannery took a strict, textual approach in his analysis and found that the regulation for such bonds was inconsistent with section 509(a). It provides, in the singular, that there be a bond, and mandates that "[t]he bond shall cover that area of land within the permit area upon which the operator will initiate and conduct surface coal mine and reclamation operations within the initial term of the permit. "89 The court took this provision to mean that the bond must cover the "entire area" to be mined within the term of a permit.90 (A five-year term is standard.)

The circuit court reversed and held that incremental bonding was consistent with the statute if two preconditions are met. First, so long as the full reclamation costs for the increment are calculated and bonded before the surf ace of the land is disturbed and, second, so long as the size of the bonded area is appropriate for efficient reclamation, the court concluded: "we do not see how the arrangement appreciably heightens the risk that any land will be left unreclaimed. "91 Thus, the miner was permitted to bond only so much of the mine as will be operated in the near future.

Phased bonding permitted more than one bond to cover all phases of reclamation. Under prior practice, one bond was obtained, and as reclamation proceeded, it was released in three stages. The first stage or phase involved backfilling the cut, regrading to the approximate original contour of the land, and drainage control. Up to sixty percent of the amount of the bond could be released at the completion of this phase. The second phase was re vegetation of the land, and the third, all remaining work. Phased bonding authorized three separate bonds, one for each of the three phases. In a sense, then, phased bonding recognized prior practice, but invited more precise delineation and control of any particular surety's financial exposure. It also permitted statutes

87. In Re Permanent Surface Mining Regulation Litigation II, 21 Env't Rep. Cas.(BNA) 1724, 1743 (D.C. Cir. 1984), rev'd, 839 F.2d 694, 723 (D.C.C. 1988) (hereinafter PSMRL II).

88. C.F.R. § 800. ll(b)(4) (1983). 89. 30 U.S.C. § 1259(a) (1989). 90. PSMRL II, 21 Env't Rep. Cas. (BNA) at 1743. 91. National Wildlife Fed'n v. Hodel, 839 F.2d 694, 726 (D.C. Cir. 1988).


of limitations and other equitable defenses to run from an earlier release date, the sooner to protect and benefit a surety. An operator need not secure one bond to cover the entire reclamation process and the surety does not have a large single risk to re-insure with another insurer or surety.

Judge Flannery found that phased bonding violated section 509(b). That short subsection provides: "Liability under the bond [note singular] shall be for the duration of the surface coal mining and reclamation operation and for a period coincident with operator's responsibility for revegetation requirements •••• "

92 Judge Flannery found that this subsection prohibited "breaking the bond into specific phases of reclamation."93 One bond, with one duration, seemed to Judge Flannery the plain meaning of the text of this subsection. His holding on this matter was again reversed on appeal.

Reiterating the same meta-textual theme it struck with incremental bonding, the circuit court found that so long as the total cost of the reclamation bond is sufficient to cover the reclamation costs, and so long as bonds for all three phases are posted before any of the surface of the land is disturbed, then phased bonding "measures up to the standard that we deem critical. "94 For the operator, the advantage of phased bonding lay in the earlier release of the bond, rather than up-front savings in acquiring them. Separate bonds can be used, the court reasoned, for the completion of reclamation of prior phases. In addition, if the release of one bond can be subject to phased release,95 the step to three bonds, one for each phase, is a short one. The risk that a later bond will have to be used to complete the work of an earlier, already released bond is not · appreciably greater than if one bond were partially released, in phases. The statute [SMCRA § 519(c)] seemed to recognize this problem by setting a maximum percentage release for the first phase, but not assigning a similar number for the last two phases for the partial release of a single bond.

While the circuit court did not call Judge Flannery's reading implausible, it concluded that the Secretary acted in a reasonable manner in authorizing both incremental and phased bonding procedures for state SMCRA plans.

Perhaps the difficulty with Judge Flannery's "one bond of one duration" rule was that the remaining clause of subsection 509(b) creates an expectation that has not materialized. Congress apparently felt that revegetation was to be the longest-running problem for which the surety might be held. While this might be true in the Western coal fields, drainage has as often proven to be the

92. 30 u.s.c. § 1259(b) (1994). 93. PSMRL II, 21 Env't Rep. Cas. (BNA) at 1744. 94. Hodel, 839 F.2d at 726. (The first precondition has proven the critical one.) 95. 30 U.S.C. § 1269(c) (1994) (permitting 60% of a single bond to be released when the backfilling,

regrading, and drainage control is complete).


longest running problem in the Eastern fields. Thus, the subsection on which the Judge relied had not proven to be an accurate predictor of the needs of the regulators. That being true, the statute should be read so as to adapt it to the changing and locality-specific needs of state regulators.

IV. SMCRA'S BONDING REQUIREMENT IN PRACTICE

The bond requirement is repeated in state SMCRAs as well. Being required by statute, these bonds are controlled by statute, and when the terms of the bond diverge from statutory requirements, the statute controls. 96 They are held by and made payable to the state regulatory authority as the obligee and are interest-free. If they are performance bonds, the surety has the option of paying the amount of the bond forfeited or, in the alternative, performing the principal permittee's obligation. If the bond is a penal one, the amount of the bond is typically taken in the forfeiture by the state as liquidated damages for the reclamation obligation. This has an appeal to the surety because its liability is fixed once and for all when the amount of the bond is set.

Bond premium rates are not sensitive to the possibility of a loss or a claim on the surety. This insensitivity results from the type of the application process involved; it involves a thorough credit check of the principal. So long as the principal is found credit-worthy, the premium is viewed as impervious to risk. Thus, the decade 1976-1986 saw no change in the rate schedule for bonds recommended by the Surety Association of America. 97

The typical premium is paid annually, at a rate of 1-1.25% of the bond amount. Annual payments, rather than a one time payment, have only gradually become the custom for this type of bond.98 This change in premium structure has more than doubled the effective premium rate. Typically, too, just over 25% of the premium is set aside for payment on forfeited bonds and about 70% pays for underwriting and overhead costs, leaving a 2-3% profit margin.99

As sureties have gained experience with reclamation bonds, they have reportedly imposed collateral requirements in addition to premiums and have

96. Martin v. Department of Envtl. Resources, 570 A.2d 122, 124-25 (Pa. Commw. Ct. 1990). in. NATIONAL COAL ASSOCIATION, REGULATORY ASSISTANCE PROGRAM, Reclamation Bonding 26

(1992) (hereinafter GAO Repon). 98. Id. (reporting also a survey in which 64% of permittee respondents were being charged an average

annual premium of 2.2% of the bond's face amount, and single premium bonds costing 3.85% of the face amount) The NCA's survey repons data conflicting with the GAO data, in which the premiums were found to be 5-6% of the bond's face amount over a five year term. GAO Repon, supra note in, at 2.

99. UNITED STA TES DEPARTMENT OF mE INTERIOR, OFFICE OF SURFACE MINING, PROCEEDINGS OF mE

WORKSHOPONCOALMINEDLAND RECLAMATION BONDING 73 (1986).


also required the principal to purchase all insurance from their bond underwriter.100 In 1992, collateral requirements were reported to be about 14% of a bond's face amount.101 No matter how high the amount of the collateral, the perception of rising collateral requirements seems to characterize the market for reclamation bonds.

Typically the language of these bonds contain four statutorily mandated provisions: (1) specification of a method of extraction; (2) incorporation of a plan of reclamation (required as a condition of the mining permit);102 (3) enforcement remedies specified in the controlling statute, including a procedure for bond forfeiture; and (4) procedures and provisions for the payment of bond proceeds upon forfeiture, 103 or in the alternative for the release or discharge of the bond.

At the time of permitting a surface mine, the Applicant Violator System can block the issuance of a permit if the applicant is controlled by a person or firm with outstanding fines, penalties, or other unresolved regulatory problems, including those involved with the forfeiture of a reclamation bond. 104

Some states monitor reclamation costs through mine inspections and so attempt to keep bond amounts at current prices for reclamation services. This monitoring is expressly authorized by SMCRA's section 509(e), providing that a "bond shall be adjusted by the regulatory authority from time to time as affected land acreages are increased or decreased or where the cost of future reclamation changes."105 At the same time, some state legislatures have responded to the sureties' unwillingness to bond surface mining operations by enacting statutory maximums for reclamation bonds.106 In the early 1990s, West

100. NCA Report, supra note 98, at 27 (also reporting that the tying of insurance services is less a problem than the collateral requirements. Id. at 28.).

101. Id. at 29 (also observing that this figure may be understated because when collateral requirement rose steeply, even to 100%, the permittee did not obtain the bond).

102. See, e.g., OKLA. STAT. tit. 45, § 745.l(A) (1991). 103. See, e.g., VA. CODE ANN. § 45.l-247(A) (Michie 1995) This statute is interpreted in General

Trucking Corp. v. Dishner, 464 S.E.2d 545 (1995) (a failure to abate violations of the state mining code as to diversion ditch and sediment pond properly resulted in the complete forfeiture of a reclamation bond).

104. See States Say Their Time Has Come, But OSM Still Wants Strong Fed Role, 8 MINE REG. REP., July 14, 1995 (reporting a Virginia company attempting uto prove it did not own or control another operation that had once forfeited a reclamation bond.").

105. 30 U.S.C. § 1259(e) (1994); 30 C.F.R. § 788.11 (1995) (enacted pursuant to 30 U.S.C. § 1259(e) (1994)) (current version in 30 C.F.R. § 800.15(a) (1995)), discussed and upheld in In Re Permanent Surface Mining Regulation Litigation, 14 Env't Rep. Cas. (BNA) 1083 n.22 (D.D.C. 1980).

106. See, e.g., W. VA. CODE § 22A-3-lla(c)l & 3 (1991) (repealed). cited in State ex rel. W. Va. Highlands Conservancy, Inc. v. Division of Envtl. Protection, 447 S.E.2d 920, 922, nn.15 & 17 (W. Va. 1994).


Virginia's statutory cap was $5,000 per acre. 107

The West Virginia legislature acted in the face of a mid-1980s report from the General Accounting Office concluding that reclamation bond amounts in West Virginia were only 46% of the actual costs of reclamation. 108 The same percentage for Pennsylvania was even lower-12%.109 Thus, both of these two states faced huge deficits in state reclamation programs-over $3.2 million in West Virginia, and $97 million in Pennsylvania. 110 In part, these deficits were due to passive reclamation treatment of acid mine drainage-for example, by water impoundment or contour regrading. However, in West Virginia, prior to mandamus litigation on the issue, the state denied that its reclamation duties, using forfeited bond amounts, encompassed either chemical or passive treatment of such drainage. 111

Acid mine drainage is a regional problem, but in some states it is reportedly severe, and itself a severe drain on reclamation efforts. 112 In 1994, it was the subject of a federal report by the Office of Surface Mining in the Department of the Interior. 113 In addition to West Virginia, the states of Ohio, Pennsylvania, and Virginia, as well as western Maryland, have 5,100 miles of acidic water courses. 114 Fish kills related to such drainage have also been reported. 115

Federal and state regulators have responded in at least three different ways to this failure to adequately bond an operation. First, a state's failure to calculate that amount correctly has resulted in direct federal enforcement actions after the issuance of a state permit.116 Second, a state's decision to release a reclamation

107. West Va. Highlands, 447 S.E.2d at 922 (quoting W. VA. CODE§ 22A-3-lla(c)l & 3 (1991) (repealed) ("The amount of these bonds ... cannot exceed $5,000 per acre .... ")).

108. UNITED STATES CONGRESS, GENERAL ACCOUNTING OFFICE, SURFACE MINING: DIFACULTIES IN REcLAIMING MINED LANDS IN PENNSYLVANIA AND WEST VIRGINIA ( 1986).

109. Id. 110. Id. 111. West Va. Highlands, 447 S.E.2d at 922 (mandating such treatment as a non-discretionary,

mandatory duty). 112. Treatment methods for acid mine drainage are reviewed generally in R. Carter, Reclamation Plows

New Ground, COAL, July 1989, at 44 n.4. 113. U.S. DEP'T. OF n!E INTERIOR, OFFICE OF SURFACE MINING, DRAFT REPoRT OF n!E ACID MINE

DRAINAGE PoUCY TEAM (Sept., 1994), reported in, INSIDE ENERGY (McGraw-Hill Oct. 10, 1994). 114. Cuts blamed for laxness on mine acid, HARRISBURG PATRIOT AND EVENING NEWS, Dec. 11, 1995,

at 87; see also Paul Nyden, State Lacks Funds to Reclaim Old Mines, CHARLESTON GAZETTE & DAILY MAIL, May 26, 1996, at IC (reporting that OSM estimates that W. Va. was then $62 million short of the reclamation funds needed for revegetation and water pollution treatment).

115. Don Hopey, Mine acid curbs life in the Yough, PrrrsBURGH POST-GAZETTE, Dec. 19, 1994, at Al3. 116. SENATE COMM. ON ENERGY AND NATURAL RESOURCES, SUBCOMM. ON FORESTS AND PUBLIC LAND

MANAGEMENT, TESTIMONY OP JAMES W. CARTER, DIRECTOR, UTAH DIV. OP OIL, GAS, AND MINING, UTAH DEPT. OP NATURAL RESoURCES (May 2, 1996) (available on NEXIS, Cumws Lib., May 14, 1996).


bond has resulted in a federal override of the state regulatory decision.117 Third, at the state level, some states began consideration of alternative bonding systems. These alternative systems are authorized by SMCRA's 509(c). 118

These systems are not generally site-specific, as are surety bonds. They are run by the state, with reclamation performed by state regulators, and involve "bond pools." By 1989, nine states had enacted some type of alternative or supplementary system. 119 Two years later, the number was down to six and there was concern for the solvency of these systems.120 Operators pay funds into these systems; in West Virginia, for example, there is a one cent severance tax on coal. 121 Other states were charging a flat rate of about $2,500-$3,000 per acre.122 The payments made into the systems are not site-specific, although the West.Virginia Supreme Court has characterized the payments as resulting in a performance bond. 123 This means that a surety will not actually perform the reclamation, but rather the state or its agents will. The West Virginia regulators cannot by statute charge permitees more than $1,000 per acre for them. 124

V. UN-COUPLING BONDS AND PERMITS

By 1989, regulatory requirements for mining permits and bonds, which had worked in tandem, were un-coupled. 125 In April 1989, the Secretary of the Interior amended the regulation that required the permittee to renew its permit by deleting the renewal requirement when "it has finished digging out coal and only is working to reclaim the land from the effects of mining. "126 In the past, the operator had to have a permit during all mining and reclamation activities and thus had to maintain the permit until final bond release.

117. HOUSE COMM. ON NATURAL REsOURCES, SUBCOMM .ON ENERGY AND MINERAL RESOURCES, HEARINGS ON TIIE SURFACE MINING CONTROL AND REcLAMATION AMENDMENTS OF 1995, 104111 CONG., lSTSESS. (JUNE27,1995) (reporting a Colorado decision to release a reclamation bond for a gold mining operation) (testimony of Gwen Thompson).

118. 30 U.S.C. § 1259(c) (1994) (allowing states to develop "an alternative system that will achieve the objectives and purposes of the bonding program" as an alternative to site-specific bonds).

119. AMLFunds Seen as Possible Answer to Reclamation Bonding Crisis, INSIDE ENERGY, March 13, 1989, at 12.

120. Jeff Barber, OSM 'Vigil' over State Bond Pools is Urged, INSIDE ENERGY, Jan. 28, 1991, at 1. 121. SMCRA Seen Not living Up to Potential, 14 COAL OUTLOOK, May 7, 1990, at 6. 122. Id. 123. West Va. Highlands, 447 S.E.2d at 923. 124. Id. 125. National Wildlife Fed'n. v. Lujan, 31 Env't Rep. Cas. (BNA) 2069 (D.D.C. 1990) (one of the

Round IV opinions). 126. Id. at 2083 nn. 15 &16.


This deletion was arguably contrary to the Act, but the federal district court upheld the deletion. Judge Flannery cited several plausible arguments made by the Secretary. First, the operator's reclamatioi1 duties remained in place even if its permit was suspended or revoked. 127 Indeed, the post-mining renewal requirement was arguably inconsistent with that policy. Second, requiring the lengthy permit renewal process as a pre-condition to reclamation is to postpone the latter. A more immediate reclamation process is preferable.128

Third, the Secretary's authority to treat reclamation problems outside of the previously permitted area is greater when not hindered by the renewal process. Fourth, and finally, the Secretary argued that regulatory burdens would be reduced by the deletion.

While these four arguments are plausible, the first argument which dealt with the independence of permits and the duty to reclaim, represents an increased acceptance of the realities found in many surface mining operations. The statutory objective, not often met in practice, was to make reclamation part and parcel of the mining itself. It was said that reclamation is best and most cheaply performed in a continuous operation, alongside the mining. The ideal is to have the mined area totally reclaimed not long after the coal is exhausted. Thus, reclamation would never be more than a cut or two behind the actively mined cut. When this holistic approach to mining and reclamation works, the renewal permit required for reclamation alone-reclamation performed after the exhaustion of the mine-was in effect a process aimed at setting up procedures for sealing the mine before its abandonment and taking account of conditions found during the mining and unanticipated during the formulation of the premining reclamation plan. That opportunity for review is lost to the Secretary,

127. In construction bond cases, courts reason that a licensing statute is for the obligee 's or the principal's protection; because the statute prohibits the operator from suing, does not mean that a reverse suit is, or should be, barred. Cohen v. Mayflower Corp., 86 S.E.2d 860, 866 (Va. 1955) (citing cases). When the obligee may sue the operator or reclamation company despite its unlicensed status, a surety should be held to its bond when the reclamation company can be forced to perform its contract and should not be able to use a statute designed to protect those who deal with the reclamation company. See also infra n.153.

128. When an operator cannot gain access to the exhausted surface mine in order to reclaim it because the miner has failed to secure the consent of all of the mineral owners to the mining, so that the entry would be a trespass against non-consenting owners, the surety need not honor the reclamation bond. If the principal is prevented from performing its obligations by an action of the owner or has a defense against that owner, the surety also has a defense on its bond. A defense that the principal has against the obligee is also available to the surety. The surety's obligation is equal to the operator's, but no more or less. In the construction field, when the owner is in breach so that the general contractor cannot perform the construction agreement, the surety has a defense on its performance bond. When the bond runs to the state regulatory agency and it has not participated in or authorized the actions of the owner on which the defense is based, there is some authority that denies the surety a defense. Houdille Indus., Inc. v. United Bonding Insur. Co., 453 F.2d 1048 (5th Cir. 1972).


and most likely129 to state regulators in primacy states under the new regulation. As to the second argument (postponement), one response might be that the

renewal permitting process will be a lengthy one only when it needs to be-that is, only when the sealing of the mine presents problems unforeseen in the premining reclamation plan.

The third argument (externalities) is the Secretary's implicit promise of widened jurisdiction once freed from the administrative law straight jacket. With the caveat that the promise is only implicit, the reclamation activities might be broadened beyond the mine permit area to deal with spoil banks, 130

lands where topsoil is stored or spread during reclamation, and areas which have been prospected or explored for minerals during the surface coal mining operation, but not mined. All of these areas might be the subject of a surety bond, but not included in the permit. In the future, they might be included in the determination of the bond amount. Whether this will occur is an open question. Judge Flannery in this opinion was impressed with the Secretary's "forthrightness" in making his arguments.

The fourth argument (administrative burden) is very plausible in the short run. The problem with it is one of timing, and whether it is true in the long run. It saves administrative problems in one forum at the expense of (1) creating problems in another administrative forum (for example, in the review and renewal of water discharge permits under federal and state water pollution statutes131 and (2) creating judicial problems (for example, over the interpretation of the bond, now perhaps subjected to reclamation activities outside of the permitting process).

Considering the bond problems first, if the third argument (externalities) turns out to be true, the underlying law of suretyship may discharge the surety. The surety is entitled to a duty of continuous good faith behavior from the obligee and will be released by an unauthorized, unilateral, and material alteration of the principal's agreement.132 This is the rule of discharge. This rule

129. This is not a foregone conclusion because state regulations can under SMCRA be more stringent than federal regulations. Laurel Pipe Line Co. v. Bethlehem Mines Corp., 624 F. Supp. 538 (W.D. Pa. 1986); cf. Alternative Fuels v. Lujan, 1992 U.S. Dist. LEXIS 15785 (D. Kan. 1992) ("OSM's duty in reviewing state program amendments is limited to a determination of whether the proposed state provisions are 'in accordance with' SMCRA and 'consistent with' its implementing regulations. See 30 C.F.R. §§ 732.15(a) and 730.S(b). "). The realism of expecting state regulations to be more stringent is an open issue.

130. See, e.g., Citizens for a Responsible Resource Dev. v. Watt, 579 F. Supp. 431, 436-37 (N.D. Ala. 1983) (raising this issue).

131. Cf. Webb v. Gorsuch, 699 F.2d 157 (4th Cir. 1983) (reviewing whether EPA's decision regarding the discharge of water from underground coal mines and its environmental impacts was arbitrary and capricious).

132. A. A. STEARNS, THE LAW OF SURETYSHIP 105--09 (5th ed. 1951).


may be invoked in whole or in part, depending on the jurisdiction, but it is both an argument for administrative stasis and undercuts the third argument, while making the fourth more plausible. In other words, the regulators will only enforce the pre-mining reclamation plan because to do otherwise would run the risk of discharging the surety, who would surely have every incentive to find that there has been an administrative alteration in its obligation. In the end, the discharge rule is a policy reason for un-coupling the mine permit and the reclamation process as the Secretary did, so long as the surety is not a consenting party to the final permit renewal procedure.

All of these four arguments place a premium on the rigor and foresight of the initial mine permit processing and review. The ultimate test for all of them lies in that process. The Secretary might rightly have concluded that making them more rigorous is the test of the reasonableness of his changes, but he did not argue for them in this manner.

As a matter of statutory interpretation, Judge Flannery agreed that section 506(a)133 did not require a permit be renewed solely to conduct reclamation activities. Nor was he willing to find that even though the bond is required for obtaining a permit (plaintiffs cited several related statutory provisions to this effect), it needs to be maintained so long as the permit is, and does not survive the lapsing of that permit. 134 More generally, the judge found that the change was a reasonable response to specific problems and has been carefully limited to prevent the frustration of other statutory goals. "The Secretary cannot agree with every comment made to him, and the law does not require him to do so."135

Finally, the judge noted that, even though the environmental group plaintiffs were experts in pointing to the environmental harm worked by any changes they opposed, they did not do so in this instance and the court inferred from this that they were unaware of any anomalous results. 136

VI. BOND FORFEITURE PROCEDURES

Whether reclamation is bonded once or in an incremental or phased manner, its cost remains high. In 1991 dollars, the cost in western states ranges

133. Compare 30 U.S.C. § 1256(a) (1994), with 30 U.S.C. § 1291(27) (1994) (defining "surface coal mining and reclamation operations n separately).

134. National Wildlife Fed. v. Lujan, 31 Env't Rep. Cas. (BNA) 2069, 2085 (D.C. Cir. 1990) (citing 30 U.S.C. § 1257(1) (1994) (providing that liability insurance shall "be maintained in full force and effect during the terms of the permit and or renewal, including the length of all reclamation operations.")).

135. Id. (stating that "[h]e need only explain the source of his disagreement."). 136. Id.


from $5,000 to $20,000 per acre for land that can sell from $200-$300 per acre.137 (Here still lurks the Peevyhouse dilemma.) In 1990 in an eastern state like Pennsylvania, that cost can be $10,000 per acre.138 The amount of forfeited bonds has not kept pace with the need for reclamation.

When a bond is forfeited, the operator bears the burden of proving that the regulator's decision was in error. The state need only show that the forfeiture is supported by substantial evidence.139 Such a quantum of evidence is more than a scintilla of evidence, but less than a preponderance of the evidence-that is, what a reasonable mind would accept as a basis for action.

The procedures to be used for bond forfeitures are mandated by federal regulations. 140 The regulators send a notice to "the permittee and the surety ... of the determination to forfeit all or part of the bond, including the reasons for the forfeiture and the amount to be forfeited ... based on the estimated total cost of achieving the reclamation .... "141 The notice of the reasons for the forfeiture is the regulatory equivalent of a notice of a default, of which the surety would need notice in a commercial context. In the commercial context, however, no demand or notice of default is required to fix the liability of the surety on the bond absent a contract right to the contrary.142 In addition to this notice it shall advise both of the conditions under which forfeiture may be avoided, including performance by the permittee in accordance with a compliance schedule that the performing party can demonstrate that it can meet, or completion of reclamation by the surety .143

Bonds filed in compliance with statutes in effect pre-SMCRA have been forfeited to enforce reclamation compliance with those statutes, 144 even though the permits in effect at the time of the forfeiture were issued under SMCRA. 145

When the record does not show that the surety had know ledge that the bonds were being used to comply with SMCRA and when the bonds expressly state

137. Anna M. Gillis, Bringing Back the Land: Ecologists Evaluate Reclamation Success on Lands Surface-mined for Coal, 41 BIOSCIENCE, Feb. 1991, at 68.

138. SMCRA Seen Not Living Up to Potential, 14 COAL OtrrLOOK, May 7, 1990, at 6. 139. Morcoal Co. v. Department of Envtl. Resources, 459 A.2d 1303, 1308 (Pa. Commw. Ct. 1983)

[hereafter Morcoal] (citing eyewitness testimony before the Environmental Hearing Board of erosion, water accumulation and lack of treatment, failure to save topsoil, burying topsoil, failure to backfill, and silting, and affirming Board forfeiture order).

140. 30 C.F.R. § 800.50 (1995). 141. 30 C.F.R. § 800.SO(a)(I) (1995). One state, West Virginia, has in the past required a 30 day notice

before forfeiture. State v. Elder, 165 S.E.2d 108, 111 (W. Va. 1968). 142. Holmes v. Frost, 17 A. 424 (Pa. 1889), discussed in 35 PA. L. ENCYCLOPEDIA Suretyship § 60

(1961). 143. 30 C.F.R. § 800.50(a)(2)(i)-(ii) (1995). 144. American Cas. Co. of Reading, Pa. v. Department of Envtl. Resources, 441A.2d1383, 1385-88

(Pa. Commw. Ct. 1982) [hereinafter American Casualty]. 145. Id. at 1386


that their purpose is to insure faithful perf onnance of the requirements of a preSMCRA statute, that fonner statute "should be used to interpret the bonds."146

The burden on the regulators to update the fonn of the bond, if necessary, is slight enough that

had DER wanted [the surety's] bonds to reflect the change in law, it could have and should have demanded that new or amended bonds be filed. Having failed to require . . . new bonds, DER cannot now insist that this Court construe the bonds in such manner as to include the provisions of SMCRA.147

Interpreting the bond in this manner also avoids problems with the surety that might otherwise be tempted to assert the discharge rule to avoid its bond obligation.

Likewise, the transfer of bonds issued for an interim state program could be forfeited to federal regulators enforcing a program in Tennessee. 148 This result is consistent with the language of the bonds typically used, to the effect that the bond runs to the assignees of the obligee.

Reclamation bonds are "penal" in nature.149 One aspect of this tenn is that the obligee need not prove actual damages at the time of forfeiture. 1so A regulator's duty to advise the surety of conditions under which forfeiture may be avoided, is arguably inconsistent with this aspect of the bond; for the surety, it may serve the same function that a proof of damages would.

Another aspect of a penal bond is that the obligee regulator need not make any pre-forfeiture inquiry into whether there are less stringent means of enforcement not requiring forfeiture. 1s1 Were either proof of damages or mitigation required, the difference between suretyship and insurance would diminish pro tanto.

Neither is the pennittee's assignment of its right to mine to a contract miner a defense to a forfeiture. 152 It would create anomalous results if a pennittee

146. Id. (noting also that both the former statute and SMCRA required that bonds be issued on a departmental form.).

147. Id. 148. Exchange Ins. Co. v. United States Dep't of the Interior, Interior Bd. of Land Appeals, 820 F.

Supp. 357, 359 (E.D. Tenn. 1993). 149. State v. Gulf American Fire & Cas. Co., 680 S.W.2d 455, 457 (Tenn. 1984) (citing 12 AM. JuR.

2D Bonds §44 (1964). 150. American Casualty, 441 A.2d at 1388. See also Ogden, 501 A.2d at 314 (holding that bonds in the

instant matter could be considered as penal in nature, as DER need not prove actual damages where an operator has breached the condition of the surety); Morcoal, 459 A.2d at 1305-06 (stating that even though the actual cost of reclamation could be proven, there is no need to do so and that the regulator is not required to prove damages actually sustained in order to collect on the bond).

151. Morcoal, 459 A.2d at 1308 (stating also that there was "massive evidence" of the permittee having abandoned other operations without reclamation).

152. Id. at 1307.


could delegate statutory duties such as reclamation to another. Any regulator's enforcement actions would then have to move through successive layers of defendants. A private assignment or agreement should not trump the statute.

Several other defenses to forfeiture have likewise been rejected. A permittee' s lack of a current permit to mine is no defense against forfeiture. 153

This is only one of the conditions under which the bond is needed and forfeiture necessary. 154 In addition, the uncoupling of reclamation and permits, a feature of the recent regulatory environment, is consistent with denial of this defense.155

Neither is regulatory negligence (if there is such a thing) in the enforcement of a state's programs a defense to a forfeiture. 156 In a time of tight governmental budgets, it is to be expected that regulatory action will move slowly. This slowdown is hard to distinguish from negligence and the judicial creation of such a distinction is unwise. In the Ohio Farmers opinion, the surety argued that a two year delay in citing the reclamation operator for backfilling violations materially prejudiced the surety and discharged its liability on the bond. 157 The court rightly rejected this argument. First, the regulatory scheme involved conferred authority, not duties, on mine inspectors and regulators. Moreover, regulatory discretion is necessary to make the system work. If the legislature means there is to be no discretion, it can say so. Second, the surety has the burden of proof to show prejudice. It will not typi~ally be able to meet this

153. This conforms to the law of suretyship generally. An analogous situation is present when at the time that the bond is written, the principal or the company specified in the reclamation plan as the one to do the reclamation work, is not licensed. (A license may be a precondition for the reclamation company's collection of its compensation in the courts.) The surety may not refuse to honor the bond because the work if performed would have been illegal on this account. In the law relating to construction bonds, the courts reason that the licensing statute is for the obligee' s or mineral owner's protection; just because the statute prohibits the reclamation company from suing the mineral owner, does not mean that a reverse suit is, or should be, barred. Cohen v. Mayflower Corp., 86 S.E.2d 860 (Va. 1955). When the obligee can still sue the reclamation company despite its unlicensed status, a surety should be held to its bond when the reclamation company can be forced to perform its contract. The surety should not be able to use a statute designed to protect those who deal with the reclamation company when the bond is also intended for the obligee/owner' s protection.

154. Morcoal, 459 A.2d at 1308. 155. See supra text accompanying notes 112-21. 156. Ohio Farmers Ins. Co. v. Department of Envtl. Resources, 457 A.2d 1004, 1007 (Pa. Commw.

Ct. 1983) (hereinafter Ohio Farmers) (stating that "[a] surety is not relieved of its obligation even in a situation where a government has been indifferent to negligent enforcement of the law . . .. " and citing City of Harrisburg v. Guiles, 44 A. 48, 51 (Pa. 1899)); American Cas., 441 A.2d at 1388 (holding that regulators owed no duty of due diligence to surety); see also Ogden, 501 A.2d at 313-14.

157. Ohio Farmers, 457 A.2d at 1007 (citing REsTATF.MENTOFSURE1Y, § 124(2)(1995))(providing that the creditor has duty to repon to the surety facts unknown to the surety, but discharging this duty when those facts are not subject to confidentiality)). This section is difficult to apply in the context of a statutory reclamation bond, although its proviso for confidentiality may make the section inapplicable.


burden. Delaying liability is instead likely to be of benefit to the surety in that it postpones the day of paying the claim on the bond and gives the principal an additional opportunity to perform the reclamation itself.

On the other hand, when a statute sets a time limit on forfeiture proceedings, the failure of the regulators to take action entitles the principal to resist the later initiation of proceedings. "[A] surety can make any defense not personal to the principal, that the principal can."158 Thus, a surety may assert as a defense the statute of limitations available to the principal, even if the principal has not raised it. To hold otherwise might decrease the regulatory incentive to press for early reclamation. ''To remove a time limit for enforcing reclamation is to encourage delay of reclamation."159 It might also mean that the surety would be indefinitely liable on the bond. 160

In one recent, leading case on bond forfeitures, the Pennsylvania Commonwealth Court examined the issue of whether the insolvency of the principal is a defense to a forfeiture action by the state's regulators. 161 Appeals from departmental decisions on forfeitures in Pennsylvania are made to a quasilegislative agency, the Environmental Hearing Board. 162 The Board, in a ruling issued prior to the forfeiture hearing, precluded the principal permittee from raising this and one other issue. 163 The court started its brief analysis of the insolvency defense issue by noting that insolvency was in Pennsylvania's administrative regulations on forfeiture, expressly included as a basis for declaring a forfeiture. "The Department will forfeit the bonds for a permit when it determines that ... [t]he permittee has become insolvent."164 This, the court

158. Commercial Standard Ins. Co. v. Alabama Surface Mining Reclamation Comm'n, 443 So. 2d 1245, 1249 (Ala. Civ. App. 1983) (holding that a failure to file complaint within statutory time period deprives Commission of jurisdiction over the principal, thereby discharging the surety), reaffirmed sub nom., 469 So. 2d 619, 619-20 (Ala. Civ. App. 1985).

159. Commercial Standard, 443 So. 2d at 1248. 160. Id. (rejecting the argument that "the failure to reclaim [mined] land is a continuing act which does

not abate until the land is properly reclaimed .... "). 161. Martin v. Department of Envtl. Resources, 570 A.2d 122, 124 (Pa. Commw. Ct. 1990). 162. Id. at 125. Appellate review of this Board is limited to determining whether constitutional rights

are violated, an error of law is committed, or its decisions are not supported by substantial evidence. Ogden, 501 A.2d at 311. Limited review in this instance tends to put off judicial review, but the timing of this review has been form in accordance with the federal SMCRA. Pennsylvania Coal Mining Ass'n v. Watt, 562 A.2d 741, 743-44 (M.D. Pa. 1983). See also Snyder v. Department of Envtl. Resources, 588 A.2d 1001 (Pa. Cmmw. Ct. 1991) (holding that the Board has authority to issue a "summary judgment" and also that admissions of the permittees and operators combined with inspector's affidavit was sufficient to support Board's entry of summary judgment).

163. Martin, 570 A.2d at 125 (holding also that the defense that departmental employees asked for a bribe not to forfeit the bond was also precluded because other avenues of relief were available with respect to bribery allegations).

164. Id. (citing 25 PA. CODE § 86.181(a)(6)(1990)).


agreed, was as it should be. The bond is required precisely because the principal may not be able to perform the reclamation itself.165 Absent an assumption that the permittee may at some time in the future be unable to perform the bonded obligation, the bond would be unnecessary.166

In Pennsylvania and several other states, bonds are not fully released, and so may be forfeited, for a period of five years after the completion of reclamation.167 This is known in the industry as the "extended liability period" 168

and is intended to extend the term of the bond until it is known whether revegetation of the mine site is successful. 169 In one case involving the timeliness of the regulatory forfeiture, the permittee defended against a forfeiture with the argument that over five years since the completion of surface mining had passed-where "the language of the bond agreement . . . limits liability on the bonds to a period of five years after the completion of surface mining."170 The principaVpermittee argued that the term surface mining includes only the period during which "coal is being extracted from the earth and not the period of time when the surface of the earth is being reclaimed."171 The language of the bond further provided that:

NOW THE CONDIDON OF THIS OBLIGATION is such that if the said surface mine operator shall faithfully perform all of the requirements of (1) [the state's SMCRA and (2) its water pollution law] (3) the applicable rules and regulations promulgated thereunder, and (4) the provisions and conditions of the permits issued thereunder and designated in this bond (all of which are hereafter referred to as "law"), then this obligation shall be null and void, otherwise to be and remain in full force and effect in accordance with the provisions of the law.

165. In other areas of suretyship, this result conforms to the type of financial risk contemplated when the bond is executed and so termination of the principal' s reclamation obligation does not release the surety from its bond. Continental Realty Corp. v .. Andrew J. Crevolin Co., 380 F. Supp. 246 (S.D. W. Va. 1974), noted in Richard S. Wisner, liobi/iJy in Excess of the Contract Bond Penalty, 43 INS. COUN. ]. 105 (1976).

166. This is a paraphrase of Trustees for Alaska v. Gorsuch, 835 P.2d 1239, 1248 (Alaska 1992) (holding that the amount of a reclamation bond may be calculated with the underlying assumption that the permittee will be in violation of Alaska's version of SMCRA when the bond is forfeited and stating: "The amount of the bond is academic absent a failure [to comply with the statute].•). See also Morcoal, 459 A.2d at 1308.

167. This period is five years in the Eastern coalfields, and ten years in the West (where drier conditions make revegetation a bigger problem).

168. NATIONAL COAL ASSOCIATION, REGULATORY ASSISTANCE PROGRAM, Reclamation Bonding 21 (1992).

169. 30 C.F.R. § 800.40(c)(2) (1995) (prohibiting release of a bond when suspended solids from the permit area are found in adjacent streamflow or run-off in excess of the requirements set by section 515(b)(l0)).

170. Martin, 570 A.2d at 125. 171. Id.


LIABILITY UPON THIS BOND ... shall continue thereon for the duration of surface mining ... and for a period of five (5) years thereafter unless released ... : 12

Calling the bond "statutory in nature," the court reasoned that the parties to it intended that the bond was executed so as to satisfy the requirements of the statute, and so its terms should be construed according to the canons of construction that would be applied to the same or similar terms in the statute. 173

In the instance of SMCRA, of course, the term "surface coal mining" operations is extensively defined174 and well litigated. 175 Surface mining activities, as defined in federal SMCRA, are those conducted on the surface of lands in connection with a surface coal mine or in areas where such activities disturb the natural land surface. As such, they require a permit and are included within the permit area!76

Reclamation is clearly an activity within this definition, and so is within the definition of surface coal mining. Mineral deeds have been construed so as to encompass post-extraction activities when those activities are required by governmental regulations. 177 Although not expressly named, reclamation is an activity that is conducted at the mine site and is incidental to and results from the surface mining itself. It would not be necessary and would not be conducted, but for the presence of the surface mine, although this definition is not meant to be (as the D.C. Circuit has concluded) of the "but for" type. It is, however, proximately caused by the operation of the mine.178 Moreover, the Pennsylvania court concluded a report on the completion of the reclamation process, and completion itself, was required by the state, and so, under the quoted bond language, they also became a condition of the bond.179 Reclamation was thus found to be included within the term surface mining, as used in the bond. Thus, the forfeiture action by the regulators was a timely one. 180

172. Id. at 125-26. 173. Id. at 126 (quoting 12 AM. JUR. 2D Bonds§ 26 (1964)). 174. See 30 U.S.C. § 1291(28)(A)-(B) (1994). 175. See, e.g., Hodel, 839 F.2d at 742-45 (involving a review of Round m challenges and litigating the

scope of the permit area 30 U.S.C. § 129l(A) & (B)). 176. 30 U.S.C. § 1291 (A)-(B) (1994). 177. See, e.g., Pittsburg & Midway Mining Co. v. Shepherd, 888 F.2d 1533 (11th Cir. 1989)

(construing a sedimentation pond as a use of the surface within access easements in a 1912 mineral deed), discussed in BURKE, BECK, & Fox. MINERAL LAW 287 (1994).

178. Hodel, 839 F.2d at 744-45 (using the principle of proximate causation familiar in tort law as a guide to the scope of the definition of a surface coal mining operation and suggesting that it is a limiting principle).

179. Martin, 570 A.2d at 126. 180. Id. at 126-27.


A bond may be forfeited for use on an area unreclaimed under statutes enacted prior to SMCRA. The reclamation obligation is a rolling one. A permittee is responsible for all reclamation statutory requirements as they are added, and amendments as they are made in order to clarify the Act. 181 (What about the discharge rule here?) This obligation is similar to one used when releasing reclamation bonds. 182 However, one Pennsylvania case has held that the extension of a permitted surface mining operation to adjacent unpermitted land does not provide a basis for forfeiting an incremental bond for land within the permitted area. 183

Once the regulators have notified the surety of a forfeiture action, the surety may advise further action or a suit against the principal. Assuming that suit is brought and a judgment is obtained, but is unsatisfied, the regulators will then file a claim on the bond. At this point, the surety has no defense to the claim because the period for filing a claim on the bond (shorter than the applicable statute of limitations) and stated in the bond terms and conditions, has expired. If the initial notice was within the terms of the bond, the surety is estopped from asserting the bond provision when the earlier advice came within the claims period. 184

As the preceding paragraph indicates, there is probably a good deal of informal negotiation between the surety and the obligee (the regulators) over the forfeiture. 185 The result is probably informal agreements and less than adequate forfeited amounts. 186 If the state is to supervise the reclamation thereafter, the state needs also to negotiate with the principal to gain an access easement or license for the firm performing the reclamation.

181. Id. at 127 (involving a permittee that signed deparunent consent orders promising reclamation of such areas).

182. See supra text accompanying notes 160-68. 183. American Casualty, 441 A.2d at 1386-87 (involving a bond that increased in amount, at a per acre

rate, as surface mining proceeded). 184. See, e.g., Contee Sand and Gravel Co. v. Reliance Ins. Co., 166 S.E.2d 290 (Va. 1969) (involving

a misrepresentation by the issuing agent that the surety had provided a performance bond, but not a payment bond when suit was filed based on this misrepresentation).

185. 17 Abandoned Mine Sites to be Reclaimed, PR NEWSWIRE, July 13, 1995 (reporting negotiations in Pennsylvania); Mine Reclamation Agreement to Restore 66 Sites in 1Wo Years, PR NEWSWIRE, May 23, 1995; Mine Reclamation Agreement to Save State Millions, PR NEWSWIRE, Jan. 13, 1995 (reporting agreements negotiated with a surety, the last for sites in six Pennsylvania counties).

186. Paul Nyden, State Lacks Funds to Reclaim Old Mines' CHARLESTON GAZETTE & DAIL y MAIL, May 26, 1996, at lC (reporting OSM criticisms of West Virginia bond amounts and forfeitures and also reporting that OSM studies showed that the state's regulators collected $3 .5 million in forfeited bond proceeds from July 1994 to December 1995, for reclamation OSM estimated would cost $12 million).


VII. BOND RELEASE CASES

During the period between 1977-1991, 4.2 million acres of surface lands were approved for surface mining with the peak year during this period being 1984, when one-seventh of those acres, about 600,000 acres, were permitted. 187

Subsequently, reclamation bonds were released for about 1.3 million acres which equals roughly 30% of those permitted. 188 Kentucky and West Virginia have topped the list of states with primacy releasing these bonds. 189

State regulations must give procedural protections to operators seeking bond releases that are similar to federal protections. 190 Here, federal SMCRA and the regulations under it are precise and provide a mandatory timetable for releasing a bond. After a release application is filed, the regulators have 30 days to investigate, and if no hearing is held, a decision on the release must be made within the next thirty days. 191 If a hearing is requested by the applicant or by persons objecting to the release, a hearing must be held within thirty days of the request. 192 A state's decision not to adhere to a similarly strict timetable between the date of the hearing and a decision on the release has led one court to remand a primacy decision on a state program and its release regulations for redrafting in accordance with the Act. 193 This case is notable because the specificity of the federal requirements in SMCRA's section 1269 prompted the court to observe that: "The requirements of the federal Act and regulations . . . appear to be aimed at protecting the economic interests of operators as well as the environmental concerns of the public."194 There is of course ample legislative history to support the latter concerns, but the former aim depends on a reading of this statutory section alone.

187. OSM Repons Coal Inspections Up Slightly, Citations Down in 1991, INSIDE ENERGY, Nov. 30, 1992, at 10 (reporting on u .s. DEYT. OF 1HE INTERIOR, OFFICE OF SURFACE MINING, SURFACE COAL MINING REcLAMATION: 15 YEARS OF PROGRESS, 1977-1992).

188. Id. 189. Id. 190. 30 C.F.R. § 800.40 (1995). See also Pennsylvania Coal Mining Ass'n v. Watt, 562 F. SUPP. 741,

745-46 (M.D. Pa. 1983) (involving a regulation permitting sixty days between a hearing and a decision on the record made there, and no limit on the time between a requested hearing and a decision). Operators have unsuccessfully argued that this case is an example of SMCRA's objective to protect the economic interests of the operator. Alternate Fuels v. Lujan, 1992 U.S. Dist. LEXIS 15785 (0. Kan. 1992) (opinion, section 0) (involving state revegetation regulations and upholding OSM approval of state regulation requiring 100% ground cover for forage).

191. 30 u.s.c. § 1269(b) (1994). 192. 30 u.s.c. § 1269(f) (1994). 193. Watt, 562 F. SUPP. at 745-46 (reviewing several aspects of Pennsylvania's primacy program,

including bond release regulations). 194. Id.


Not only is phased and incremental bonding now permitted for surface mining, 195 but a single bond may be released in stages, as the several phases of reclamation work are certified as complete. Three phases are typically recognized. The initial permanent regulation on this matter, 196 as well as subsequent regulations, have provided that 60% of the bond amount may be released when "phase I" of reclamation is complete. Phase I includes "backfilling, topsoil replacement, regarding, and drainage control" of the mine area. 197 In 1983, an Alabama regulation that deleted the topsoil replacement requirement was remanded to state regulators for articulation of the rationale for the deletion. 198 Nonetheless, the 1995 regulation defines the completion of Phase I as ''the backfilling, regrading (which may include the replacement of topsoil) and drainage control of the bonded area. "199 This seems to accept the Alabama regulation.

Phase I bond release may be denied when reclamation has not been completed on areas whose unreclaimed condition pre-exists the current mining operation. 200

The industry has claimed in a 1992 report on reclamation bonds that there is a hidden premium in a Phase I release, in the sense that when 60% of the amount is released, more than 60% of the total costs of reclamation have been incurred.201 While this may appear unfair, there are at least two reasons for the smaller than expected release. First, the earth-moving work performed in Phase I may easily generate problems that make the success of later phases less likely. For example, the grading may result in the compaction of soil that makes

195. See, e.g., Personal Service Ins. Co. v. Call, 459 N.E.2d 1307 (Ohio App. 1983). 196. 30 C.F.R. § 800.40(c)(l) (1996). 197. See, e.g .. Hidden Valley Coal Co. v. Utah Board of Oil, Gas and Mining, 866 P.2d 564, 565 &

n. l (Utah Ct. App. 1993). 198. Citizens for Responsible Resource Dev. v. Watt, 579 F. Supp. 431, 440 (N.D. Ala. 1983)

(contesting Secretarial approval of state surface mining program as not less effective than federal SMCRA and citing conclusory language without a rationale for the deletion of the topsoil replacement requirement, other than citing a contemporaneous deletion of the federal requirement proposed in the Federal Register, 46 Fed. Reg. 45082, 45095 (1981)).

199. 30 C.F.R. § 800.40(c)(l) (1995) (permitting release of 60% of the bond). 200. Patrick Coal Corp. v. Office of Surface Mining Reclamation and Enforcement, 661 F. SUPP. 380,

384 (W.D. Va. 1987) (involving issuance of a temporary injunction against a cessation order against an underground mine inspected by federal officials after state bond release based on the two acre exemption, recalculating the acreage affected by the mine and including pre-existing unreclaimed acreage, and stating that SMCRA "draws no distinction between pre-existing and newly created" needs for reclamation so long as the area is "used in conjunction with" the permitted operation).

201. NATIONAL COAL AsSOCIATION, REGULATORY ASSISTANCE PROGRAM, Reclamation Bonding 18-20 (1992).


revegetation more difficult, particularly when the reclaimed use is forestry. 202

Second, the success of the reclamation as a whole is dependent on events that are difficult to predict such as rain and humidity.

Phase II involves re vegetation. 203 When it is complete, typically another 25% of the bond amount may be released. The remaining 15% awaits the final, Phase m release. It occurs at the end of the extended liability period for the bond, when the revegetation can be reported to be a success to the regulators, and no other problems with the reclamation as a whole have been discovered. This period is five years after the completion of reclamation in the Eastern coal fields, and ten years in the drier West.204

The long life of such bonds almost inevitably leads to difficulties in obtaining future bonds. Assuming that a permittee is going to stay in the mining business, there will be a need for new bonds before the release of outstanding ones. This overlap compounds the surety's difficulty in checking on the credit of a permittee and underwriting its future bonds. Thus any delay in releasing existing bonds gives the surety a reason to back away from new bonds for the same permittee and at a minimum makes underwriting decisions for new bonds that much more speculative. In the same situation, a real estate developer might be said to be over-leveraged, but in the situation of the miner, there is no way to release the loan and reduce the surety's risk.

Special studies may be ordered in connection with a bond release hearing.205

One Pennsylvania case involving the recovery of attorneys' fees provides a detailed picture of one bond release proceeding. The operator appealed a regulatory denial of a bond release to the Environmental Hearing Board of the state. 206 The Department of Environmental Resources had denied the release, based on the testimony of a hydro-geologist, subsequently disputed by another Departmental expert's findings concerning the topography of the land. The geologist's testimony itself was flawed in several ways. Only one geologic cross-section was used to establish the local geologic structure. On-site visits substituted for maps and measurements, and water samples used for chemical analysis were confused with those from other sites. As a result, the Board held that the Department had not shown by a preponderance of the evidence that

202. See F. Brenner, IAnd Reclamation after Strip Mining in the United Slates, MINING, Sept. 1985, at 211 n.12.

203. 30 C.F.R. § 800.40(c)(2) (1995). 204. NATIONAL COAL ASSOCIATION, supra note 200, at 21 ("Most reclamation bonds are in effect for

at least seven years, and at worst may continue for 30 years or more."). 205. See 30 C.F.R. § 800.40(b) (1996). 206. Department of Envtl. Resources v. McDonald Land & Mining Co., 664 A.2d 190, 191-92 (Pa.

Commw. Ct. 1995).


there was a connection between the water seepage and the pennitted mine area.w

The more experimental a reclamation and revegetation plan is, the more likely it is that a court will uphold special regulations for the release of a bond. For example, when wetlands were to be a part of the reclamation, the issuance of a permit allowing bond release when only small areas of wetlands were found successful without also requiring separate sampling and reporting on them all lacked a reasonable basis and was struck down and remanded to state regulators.208 A requirement that completion and release go hand in statutory hand was sufficient authority for special bond conditions in this instance. 209

The release of bonds for underground mines occurs when the mine is sealed and all environmental laws, including water pollution laws, are satisfied. 210 A finding of on-going pollution by mine discharges is likely to mean that treatment facilities-perhaps involving settlement ponds created during reclamation, but also involving more active chemical treatments, may have to be continued indefinitely. With regard to treatment works, capital to build them and maintenance and repair funds for them, will have to be pledged before release. 211

·

Thus, the whole amount of bond liability is not released until revegetation of the mine site is certified as successful-and therein hangs a regulatory tale of great complexity.212 A surety might be tempted to argue that the tenn of the bond has become indefinite.

VIII. BONDING AND THE DURATION OF REGULATORY JURISDICTION

"Surface mining is a temporary use of land" and once reclamation is complete, the bond posted by the pennittee may be released. 213 Thereby hangs another regulatory tale. It involves Judge Flannery in another conflict, and another reversal of his rulings by the D.C. Circuit Court of Appeals.

2ITT. Id. at 192. 208. Gorsuch, 835 P.2d at 1249-50 (finding that the reclamation plan proposed was experimental). 209. Id. at 1249. 210. Webb v. Gorsuch, 699 F.2d. 157, 161 (4th Cir. 1983) (citing 30 C.F.R. § 806--07 (1995)). 211. See Al Hamilton Contracting Co. v. Department of Envtl. Protection, 680 A.2d 1209, 1213-14 (Pa.

Commw. Ct. 1996) (finding that a determination of on-going pollution by surface coal mine was supported by substantial evidence).

212. Anna. M. Gillis, Bringing back the Land: Ecologists evaluate reclamation success on lands surfaceminedfor coal, 41 BIOSCIENCE, Feb. 1991, at 68.

213. National Wildlife Fed'n v. Lujan, 950 F.2d 765, 766 (D.C. Cir. 1991).


Looking at the Act, Judge Flannery noted that it does not expressly and with specificity define when the termination of jurisdiction occurs. "Rather, it occurs when all requirements of the Act have been completed and all the conditions in the permit have been fulfilled." The regulators have enforcement authority when, and "whenever'' they observe "any condition or practices" that create "an imminent danger to the health or safety of the public" or a "significant environmental harm. "214 They may also reassert jurisdiction when a prior release of jurisdiction has been fraudulently obtained. Seeing these enforcement powers as without an express time limit, Judge Flannery found the regulatory jurisdiction to be "on-going and without limitation." The detailed performance standards and provisions in the Act elsewhere convinced him that rather than inferring a rule of ending jurisdiction after a reasonable time, the "more likely reading of Congress' intent is that Congress recognized that dangerous conditions could arise many years after the end of mining and reclamation operations."215 All parties agreed that terminating jurisdiction sooner, before any bond release, would violate the Act. According to Judge Flannery, this also meant that the Secretary was terminating jurisdiction at the earliest possible time. Suspicious in itself!

Looking at the Act, Judge Flannery noted that it does not expressly and with specificity define when the termination of jurisdiction occurs. "Rather, it occurs when all requirements of the Act have been completed and all the conditions in the permit have been fulfilled."216 The regulators have enforcement authority when, and "whenever" they observe "any condition or practices" that create "an imminent danger to the health or safety of the public" or a "significant environmental harm."217 They may also reassert jurisdiction when a prior release of jurisdiction has been fraudulently obtained. Seeing these enforcement powers as without an express time limit, Judge Flannery found the regulatory jurisdiction to be "on-going and without limitation."218 The detailed performance standards and provisions in the Act elsewhere convinced him that rather than inferring a rule of ending jurisdiction after a reasonable time, the "more likely reading of Congress' intent is that Congress recognized that dangerous conditions could arise many years after the end of mining and reclamation operations."219 All parties agreed that terminating jurisdiction sooner, before any bond release, would violate the Act. According to Judge

214. Id. 215. 30 U.S.C. § 1271 (a)(l) & (2) (1994). 216. National Wildlife Fed'n v. Lujan, 31 Env't Rep. Cas. (BNA) 2034, 2035 and text accompanying

notes 7-8 (1990). 217. Id. 218. Lujan, 950 F.2d at 769. 219. Id.


Flannery, this also meant that the Secretary was terminating jurisdiction at the earliest possible time. Suspicious in itself!

The Secretary replied in the District Court and on appeal that, first, the most likely Congressional intent was to permit the exercise of a rule of reason. Second, the Secretary argued that because the release of the bond was to occur only when all statutory requirements and permit conditions are fulfilled, no more regulatory functions. remain to be performed and so the earliest time for terminating jurisdiction was also the most sensible one. As the circuit court noted early in its opinion, state regulators showed little interest in enforcement actions after bond release because at that point, the state would likely be paying for any renewed reclamation effort.

On appeal, the D.C. Circuit began with a very technical argument. It noted that, while the Act's enforcement "actions" may be on-going, the actions referred to are primarily the issuance of orders requiring the cessation of surface mining and reclamation operations. 220 "Congress contemplated enforcement actions only during mining and reclamation operations. "221 Once the permitted site is no longer the scene of those operations, "and it could not be by the time the bond is released,"222 section 521 ceases to apply. That section is ambiguous at best and so may be a basis for decision.

Neither does section 520-SMCRA's citizen suit provision-"require[] everlasting jurisdiction. "223 Under the statute, there are no express time limits on citizen suits. Instead of arguing that these suits are available on an on-going· basis and so reinforce an argument for jurisdiction without limitation, the plaintiffs reversed the logical field of force of this section and said that mining and reclamation operations and citizen suits run concurrently. Therefore, after a bond release, the former operator could not be subjected to a citizen suit. Perhaps this argument was made in order to avoid the possibility that citizen suits were not subject to a statute of limitations-a possibility not fully briefed and argued because the idea of a perpetual cause of action is unknown in the law and well beyond the imagination of lawyers. Leaving open the issue of· whether citizen suits were intended by Congress to be brought "at any time after operations ceased" it "is therefore of no moment that citizens' suits might be unconstrained by any statute of limitations."224

Neither did the fall-back arguments accepted by Judge Flannery fare any better in the circuit court's opinion. Reassertion of jurisdiction and the

220. Id. 221. Id. 222. Id. 223. Id. 224. Id.


possibility of long undisclosed problems, surfacing only years after mining and reclamation efforts are over, showed the Judge that "it would be better for the government to have the power to deal" with such problems.225 This might be so, said the circuit court, but it is beside the point. The issue is whether the Secretary proposes a regulatory scheme that is reasonably consistent with the Act. It cannot be arbitrary to formulate a new regulation when faced with evidence (the evidence cited by the plaintiffs) that the old regulation is inadequate and is causing confusion.226

It is reasonable to permit reassertion of regulatory jurisdiction when the bond release was the result of fraud or misrepresentation. The latter is shown when events show that the operator has not fulfilled his reclamation obligations because no release can occur without the operator filing a statement that those obligations are complete. When they turn out not to be, the statement itself is evidence of a fraud.227 No further scienter requirement need be imposed, argued the Secretary.228 The circuit court did not comment on this conclusion.

The circuit court held that the termination of regulatory jurisdiction at the time of bond release is reasonably consistent with the Act's goals229 and provisions because it (1) does not conflict with the Act's citizen suit provisions, (2) is a reasonable response to past regulatory confusion, (3) is a reasonably identifiable point, and (4) .comes no sooner than the Act allows. "Nothing in the statute speaks in fixed temporal terms of regulation after bond release."230

This holding is prudent for several reasons. First, considering that the industry saw the Act as an intrusion by the federal government on local land use decisions, terminating regulation early minimizes this intrusion. Although finding that the Act was constitutional under the Commerce Clause, the majority opinion in the Supreme Court231 was subject to three concurring opinions.232 Such caution about federal regulatory limits is more than warranted

225. Id. 226. Id. at 770. 227. Id. 228. /dat 770-71. There is in addition a short, but inconclusive, discussion of the effect of improved

reclamation technology on the issue of the case. 229. Id. at 770. The court states: "The Act ... was a compromise, designed both to protect the

environment a.00 to ensure an adequate supply of coal to meet the nation's energy requirements." Id.

230. Id. 231. Hodel v. Virginia Surface Mining & Reclamation Ass'n, Inc., 452 U.S. 264 (1981) (rejecting

challenges to the Act under the due process, takings and commerce clauses and both expressing a deference to Congressional findings and requiring a rational basis for such findings).

232. Id. at 311 (separate concurring opinion by Justice Rehnquist, stating that • ... simply because Congress may conclude that a particular activity substantially affects interstate commerce does not make it so."). See also id. at 305 (separate concurring opinion by Powell, J. and concurring opinion of Burger, C.J.).


because of a more recent, 5-4 supreme court decision; it has set stricter limits on Commerce Clause regulation by the federal government. 233

Second, in a time of tight governmental budgets, continuing to administer a regulatory program without bond proceeds might raise public expectations for reclamation that might not be fulfilled, further adding to public disenchantment with regulation. Administering a regulatory program in which a permittee was unbonded but still subject to jurisdiction, is likely to produce a more unworkable regime than does this holding-and this is particularly likely when the regulated industry is, as here, operated by single-asset corporations.

Third, the holding conforms the length of the regulatory scheme to the products typically offered by sureties. The alternatives invite litigation. What if, after the closing of a underground coal mine, but before the release of the performance bond for subsidence reclamation, with the state as obligee, state regulators order reclamation and treatment of the acid mine drainage on a perpetual basis, and the administrative order to this effect is upheld by the courts?234 Has the obligation of the surety been extended in time so that the discharge rule should apply?

Fourth, terminating jurisdiction encourages development of reclaimed land and avoids litigation with sureties over the rule of discharge. 235 Instead, termination permits the owner of the reclaimed land to change its use-for example, from agricultural to commercial-and thus allows types of development that would otherwise require the surety's permission if the change is not to discharge the bond. A change in the reclaimed use, when mandated by a rezoning applicable to the reclaimed land, might also be imputed to the state as the obligee on the bond and discharge the bond. For example, the reclamation plan in the permit bonded might state that the reclaimed land be suitable for non-agricultural use, such as forestry. What if forestry were a use permitted under the zoning in effect when the bond was issued, but a subsequent rezoning

233. United States v. Lopez, 115 S. Ct. 1624, 1626 (1995) (striking down a federal gun control statute prohibiting the possession or use of a handgun near schools, as being insufficiently related to interstate commerce. This is the first holding with such an effect in 60 years).

234. This was the situation in Barnes & Tucker, 371 A.2d at 461, noted in Note, Linda M. Stowers, Acid Mine Drainage-A Review of the Barnes & Tucker Case-ls the Requirement To Treat a "taking" Under the Fifth or Fourteenth Amendment?, 5 J. MIN. L. & PoL'Y 327 (1989).

235. As an example, when the principal finishes the reclamation, but the work is incompetently done and gives rise to a claim for damages and specific performance by the mineral owner, may the state recover the cost of correcting the work? In the construction field, the liability of the surety for a payment bond is clear and re-enforced by construction (AIA) documents, but liability for a performance bond such as a reclamation bond is less clear. When the reclamation work is performed so badly that the mineral owner has the right to terminate the contract, the surety is notified and takes it over first. A surety is responsible for consequential damages chargeable to the principal, and such damages include the increased costs of reclamation work, but (again, in the field of construction bonds) not injury or damage to adjacent landowners.


ordinance places the land in an exclusive agricultural zoning district? The conditions of the bond could not expressly restrict the zoning officials authority to rezone; that would be an impermissible delegation of the police power. However, changing the required post-mining use still might work a discharge of the surety.

Fifth, so long as the termination of jurisdiction is not solely dependent on the passage of time, the environmental concerns evidenced in the Act can be expressly addressed in the bond release/termination process. Indeed, combining the two events gives the termination process a focus that it might otherwise lack. Like an attorney with a client, this combination will focus the regulators' minds. The effect of reasserting regulatory jurisdiction on the surety might, for example, be addressed during the process.

Sixth, the holding reflects the single-asset nature of the legal entities involved in mining. The dissolution of such a mining corporation will create problems in suing the surety thereafter. When the principal is a dissolved mining corporation and a state statute in the state of incorporation provides that claims against a dissolved corporation must be brought within two years of its dissolution, or else be barred, the issue arises whether, after two years, a suit on the reclamation bond is also barred. The cases considering this issue are divided.236 The specialized nature of statutory reclamation bonds should be clearer before the possibility of bond liability should survive the termination of jurisdiction. Were the holding of this case otherwise, the regulatory control of corporate dissolution would have to be directly addressed. Otherwise, it is likely that dissolutions would markedly increase.

Finally, other remedies survive termination, including the possibility of reasserting jurisdiction when a release is procured by fraud or misrepresentation. A federal reclamation fee and state alternative bonding taxes and pools are used to supplement bond proceeds, and the revenue from these taxes and the proceeds in these pools can be used to reclaim surface mined land. Further back-stopping these devices is the common law of nuisance. 237

236. For a case answering in the affirmative, see State v. Bi-States Const. Co., 269 N.W.2d 455, 457 (Iowa 1978) (recognizing and collecting the divided authorities; holding that when the claim against the principal is barred, a claim against the surety is barred and the surety is released; and stating that Iowa "adheres to the rule a surety may assert as a defense the statute of limitations available to the principal."); q., Regents of the University of California v. Hartford Accident and lndem. Co., 581 P.2d 197 (Cal. 1978) (involving a specialized statute of limitations, a construction completion statute, barring claims on project and holding that a claim against a surety was not barred even though a claim against the contractor was barred by the statute).

237. See, e.g., Barnes d: Tucker, 371 A.2d at 461 (upholding order for water pollution treatment and abatement for acid mine drainage from an otherwise sealed and abandoned underground coal mine). See also, Ingram v. Department of Envd. Resources, 595 A.2d 733, 736 (Pa. Cmmw. Ct. 1991) (involving a suit against the estate of a deceased operator of a mining pollution source and


IX. BONDING THE LONGWALL

Besides regulating the reclamation of surface mining operations, SMCRA also regulates the surface impacts of underground coal mining.238 Under the authority of the statute, the Secretary of the Interior requires underground or deep mine operators to repair any material damage to land caused by subsidence.239 In Round II, those requirements were upheld by Judge Flannery and the federal circuit for the District of Columbia.240 The 1979, permanent regulations did not require bonds at the start of the mining operation, but only call for bonding if and when subsidence occurs.241 The rationale for post hoc bonding is that "(w]hether, when and where subsidence will occur cannot be calculated with any degree of reliability when operations commence .... "242

This was the Secretary's conclusion, published in the Federal Register in 1983, and reasserted in 1988. 243

Under SMCRA, the Secretary is authorized to accommodate the statute's bonding requirements to the "distinct differences" between surface and underground coal mining when dealing with bonding requirements. 244

As initially proposed, subsidence-caused reclamation and bonding were to mature at the same time. The regulators were at this time (when subsidence occurs) to use any pre-existing bonds, as well as to adjust the amount of those bond(s) to take account of the damage that is now known and will have to be reclaimed. In the regulatory scheme of things, it is only when the operator defaults and forfeits a bond before the up-ward adjustment in its amount that subsidence damage may be incompletely repaired.

This scheme had some defects. Even when the initial bond conditions reflected the possibility that the amount of the bond had to be renegotiated and

interprets Barnes cl Tucker broadly by stating water polluters acquire no prescriptive or property right to pollute no matter how long the pollution has continued).

238. National Wildlife Fed'n v. Hodel, 839 F.2d 694, 701 (D.C. Cir. 1988). 239. Id. at 726. 240. Id. at726-27. 241. Id. (citing 30 C.F.R. § 800.14 (1988)). An earlier draft of these regulations did require a bond to

defray the potential costs of subsidence-caused damage to the surface, but the requirement was dropped in the face of industry comments emphasizing inadequate predictors for subsidence and the cost of repairing the damage it causes. Id. at 728.

242. Id. at 727. 243. Id. 244. Id. at 726-27 (citing SMCRA, § 516(d)).


increased,245 such a condition is at the least an invitation to the surety to impose more onerous financial conditions on the operator-for example, procuring insurance and stand-by letters of credit. At most it is an invitation to refuse to increase the amount and to invoke the discharge rule. In general, this regulatory regime seems to have failure built into it. Just when the bond is needed, it is subject to challenge. If an operator can afford this type of bond, it can likely also afford to become self-insured.

Long-wall mining was just getting underway in this country's underground coal fields when the permanent regulations were drafted in 1978 and 1979. The regulatory scheme governing long-walling has the same general features, but has some special, additional features. In 1980, the Secretary added a regulation that applied only to long-wall permits and required a pre-mining bond against the non-performance of measures designed to protect existing sensitive surface facilities and relocate utility and pipe lines.246 Thus, only pre-operation preventative work was covered. These bonds would have been released when the preventative measures are performed. These regulations were to be effective in 1981.

These were not bonds to cover repairs caused by subsidence, even planned subsidence, of the surface. However, even this limited bonding regulation was withdrawn later the same year. The Secretary reasoned that bonding preventative measures was unnecessary because when the mine operator failed to take such measures, the mine's permit was to be revoked in any event, thus eliminating the need for further prevention. Lacking further or new information on this matter, the Secretary's view was reaffirmed in 1988,247 leaving the general (defective) scheme in place.248 Long-walling produces damages too general or speculative to warrant regulations on bonding. 249 In other words, the regulators find it impractical to require a bond against an event (subsidence) regarded as the sure and certain result of this type of underground mining. Such a bond is just too expensive. In this event, insurance may be a better regulatory device.

245. 30 C.F.R. § 800.17(b) (1995), for example, requires that the bond "shall commence with the issuance of a permit" and "shall be conditioned upon extension, replacement, or payment in full ... . "Id.

246. Hodel, 839 F.2d at 726-27. 247. Id. at 727-28. 248. See, e.g., 30 C.F.R. § 817.121(c)(5) (1996) (requiring adjustment of bond amount when subsidence

occurs). 249. See, e.g., Island Creek Coal Co. v. Rodgers, 644 S.W.2d 339 (Ky. Ct. App. 1982) (distinguishing

between strict liability for a loss of subjacent support, but imposing negligence liability for subadjacent support).


The next review of SMCRA regulations on subsidence occurred in 1991 when the regulations required that the permittee shall

either correct material damage resulting from subsidence caused to any structures or facilities by repairing the damage or compensate the owner of such structures or facilities in the full amount of the diminution in value resulting from the subsidence . . . Compensation may be accomplished by the purchase prior to mining of a non-cancelable premium-prepaid insurance policy.250

Insurance has in fact carried the day to prevent subsidence. Not just that, but the Secretary has been granted considerable discretion to decide if prevention before the fact, or restoration, repair, and compensation after the fact, provides the most workable scheme for dealing with subsidence. 251 Bonding the preventative work might have been suitable, but compensation via insurance carried the day.

The use of insurance makes sense in the face of uncertainties about subsidence, but those uncertainties about where and when subsidence might occur above the underground mine actually decrease in the face of threedimensional geologic surveys.252 And even if some uncertainties remain after the best seismic surveys have been performed, some situations might still warrant the use of bonds. For example, when a pipeline overlies a mine,253 the subsidence of strata around the pipeline should be strictly monitored and the use of performance bonds for preventative shoring up the pipe seems warranted as a matter of pipeline safety. Legislation requiring further bonding seems warranted here. Thus far the compensation scheme for subsidence has proven inadequate to the task. 254

X. CONCLUSION

The use of bonds to implement the requirements of SMCRA and to secure reclamation conditions attached to permits arose in the same circumstances that

250. National Wildlife Fed'n v. Lujan, 928 F.2d 453, 456 (D.C. Cir. 1991). 251. Id. at 459. 252. 0. Anderson & J. Pigott, JD Seismic: Its Uses, Limits and Legal Ramijica1ions, 42nd Ann. ROCKY

M"IN. MIN. L. INST 1-16-3 (1996); Harry L. Blomquist, III, Geophysical Trespass? The Guessing Game Crealed by the Awkward Combinalion of Outmoded Laws and Soaring Technology, 48 BAYLOR L. REV. 21, 28-31 (1996).

253. Shell Pipe Line Corp. v. Old Ben Coal Co., 677 F. SUPP. 572, 575 (S.D. Ill. 1988) (denying pipeline owner a right to compensation against permittee on summary judgment interpreting state regulation on repair of subsidence).

254. Id.


have warranted the use of fidelity bonds since the nineteenth century.255 This is so because reclamation comes at the end of the mining process, and any cost avoided increases the profit margin from the operation. The miner is tempted not to reclaim the land, or not to reclaim fully, in the same manner that a tenant is tempted not to pay the last month's rent.

The use of bonds is also dictated by the uncertain approach courts have taken to reliance and expectation damages in the law of contracts. Lessors and surface owners may only receive a diminution in value measure of damages, even in the face of contracts expressly providing otherwise. 256

SMCRA's amendments to the bonding requirement since 1977 have been aimed at making a market in which these bonds will be offered and at harmonizing the law of suretyship with the needs of SMCRA' s regulatory program. Uncoupling bonds and final permits makes sure that cessation orders issued for non-compliance with a permit do not interfere with reclamation and thereby give the surety a defense to forfeiture of the bond.257 Release of the bond and the end of regulatory jurisdiction have been coupled for much the same reason. 258

The threat of the surety's assertion of the discharge rule2.'.i9 is present in several instances: (1) in the adjustment of the amount of the bond; (2) in any extension of its term-as for example, when acid mine discharges threaten nearby water supplies and watercourses with pollution; and (3) in the assertion of any defense by the principal-as for example, when the issuance of cessation orders stops reclamation work. Legislation on the working of the rule of discharge in this setting is needed. It is not enough to assert that the bond is statutory or penal. The legal rules involved are too general and judicial analysis is too thin to discourage litigation over bond forfeitures.

Calculations of the amount of the bond have often proven inadequate. The amount of the bonds are inadequate to perform the reclamation asked of them. 260

The statutory standard for fixing the amount of the bond, which is an amount "sufficient to assure the completion of the reclamation," might include many things in addition to the cost of actual reclamation. Examples include: (a) the cost of pre-forfeiture compliance enforcement, (b) the costs of post-forfeiture governmental supervision of reclamation, (c) the costs of any delays encountered in the reclamation for acts of God, labor strikes, and third-party

255. See supra text accompanying notes 1, 4, 12-13. 256. See supra text accompanying notes 56-58. 257. See supra text accompanying notes 125-36. 258. See supra text accompanying notes 212-31. 259. See supra text accompanying notes 29-30. 260. See supra text accompanying notes 105-09.


actions, (d) the costs of curing violations leading to forfeiture, as well as, (e) the costs of any permanent water-quality treatment for the site made necessary by the mining operation. Estimates for these costs are all arguably to be included in the initial amount of the bond. In addition, the adjustment of that amount is slow and not undertaken as frequently as necessary. Automatic adjustments, through the use of escalator clauses and the incorporation of financial indices into the terms of the bond, might point to a better method of handling this problem, but statutory authorization is needed.

The problem of recalculations aside, some commentators assert that the proceeds of the bonds issued for mines with problems would still be inadequate to handle the necessary reclamation. While such predictions are vague, may be more applicable to some states than others,261 and are just that-predictions-this assertion becomes more than a possibility when the problem of treating acid mine drainage is considered and included in that process. 262 Moreover, preSMCRA mines also produce substantial amounts of such drainage.263 Such mines will have to be reclaimed not with the proceeds of bonds, but with the revenue generated by the tax on coal pledged to the Abandoned Mine Reclamation Fund.264

The phased release of bonds has also proven difficult. 265 It is a source of industry concern, as well as a source of litigation. Law reform is needed in this area. First, regulators should be able by statute to retain a certain percentage of the bond liability in the same way that construction lenders use retainage to discipline the end of the construction process. Second, the concept of phasing the release of bonds should also be adapted to the problem of acid mine

261. John Voskuhl, Officials Vow to Work on Acid-Mine Drainage, LoUJSVll.J..ECOURIER-JOURNAL, Oct. 20, 1994, at 18 (reporting 412 miles of acidic streams, out of 15,000 miles surveyed in Kentucky, and suggesting that the problem is more severe in Pennsylvania and West Virginia).

262. See supra text accompanying notes 106-11. Acid mine drainage has been the focus of federal regulatory attention. See C. W. Shea, Regulating for the Long Term: SMCRA and Acid Mine Drainage 10 J. NAT. REsOURCES & ENVTL. L. 192, 206 n.63 (1994-95) (noting that two states, West Virginia and Virginia, have been reported by OSM as having insufficient funds from bond proceeds to treat existing acid mine drainage.); OSM's Acid Mine Plan "Serves No Purpose, • Coal Association Complains, INSIDE ENF.RGY, Dec. 12, 1994, at 9 (reporting that 67% of Pennsylvania's coal production comes from area producing acid mine drainage).

263. OSM's Acid Mine Plan "Serves No Purpose,• Coal Association Complains, supra note 256 (reporting industry contentions that 95 % of the drainage problem involves pre-SMCRA abandoned sites).

264. This tax is 35 cents a ton for surface coal, and 15 cents for underground coal. Associated Press, Rahall Seeks Mine Reclamation Funds, CHARLESTON GAZETTE & DAILY MAIL, March 25, 1996, at 2A. In federal fiscal year 1996, this fund enjoyed increased appropriations on account of the drainage problem from abandoned mines. AMD Clean-up Will Require Effort: Feds, Mines Pledge Cooperation, MINE REG. REP., Dec. 15, 1995.

265. See supra text accompanying notes 19-06.


drainage; this might be achieved by bonding drainage treatment facilities as a separate phase for a bond. 266

As the District of Columbia Circuit Court has said, "mining is a temporary use of land."267 The use of surety bonds should not inhibit changes in land uses permitted by local and county zoning ordinances that are in place at the end of the mining and reclamation process. Better planning procedures, if incorporated into the SMCRA permit application process, might facilitate this. A mandatory review of the reclamation plan by land use planners and zoning commissions might appropriately be mandated by statute as well.

The use of bonds is no substitute for a reclamation inspection program that is continuous, rigorous, and increasingly acts as a monitor. Monitoring is particularly important with regard to acid mine drainage treatment, because it requires frequent water sampling to be effective. Federal oversight is particularly important here and reclamation might be one area in which the United States Department of the Interior's Office of Surface Mining might concentrate its efforts in an era of dwindling resources for its efforts. Although a surety's bond may be seen as a privatizing device for a public program, the program's administrators and regulators still need to know when the bond proceeds are needed-and early warning of this need is particularly important when reclamation is an on-going process, proceeding alongside surface mining. Since SMCRA's enactment, inspections have come to be an important earlywarning system for the surface mining industry.

If surface mining is really to be a temporary use of the land and not its endstate because of post-mining hazards, surface owners and lessors need to receive rental payments in addition to royalties. The rent will enable them to correct the damage to the mined land when the bonds have not provided sufficient funds. States are taking this approach with their alternative bonding schemes today, and privatizing this effort is worth consideration.

SMCRA put reclamation into the miner's, operator's or permittee's hands and perhaps that is where it should not be. In other areas of environmental concern-for example, asbestos removal-new services and servicers have emerged to speed compliance. A separate industry for reclamation may be needed as well. 268 As the coal mining industry consolidates through mergers and acquisitions, smaller operators may be squeezed out of the business, but may also provide the personnel for such an industry.

266. See Shea supra note 262, at 209. 267. Lujan, 950 F.2d at 766. 268. Pennsylvania DEP Preparing to Reclaim Abandoned Mines, PR NEWSWIRE, May 2, 1996 (reporting

regulators execution of 17 contracts for reclamation with some small companies, the contracts funded in part by forfeited bond proceeds).

1997) Reclaiming the Law of Suretyship 499

That same consolidation may also provide two regulatory opportunities, both of which probably require Congressional amendments to SMCRA. First, there is a regulatory opportunity to adopt non-site specific bonding requirements, in addition to SMCRA' s existing requirements, to support a firm's reclamation operations. Today alternative bonding systems, enacted by several states, are backed by funds that are not site specific and so provide precedent for this change. Second, there is an opportunity to review a permittee's coal inventory and to encourage the operator to mine the best grades of coal, or those easiest to reclaim, sooner than lower grades and those harder to reclaim. In the long run, this may provide the best solution to drainage reclamation problems-by preventing them at their source.269 Currently SMCRA leaves these inventory decisions solely in the hands of the potential permittee. This, again, would probably require more specific Congressional authority than SMCRA now contains, but is worth consideration as a means of up-dating the statute to adjust it to changes in the industry since its enactment. After twenty years, SMCRA's bonding provisions need of an over-haul!270

269. Statutory authority to avoid and thereby eliminate acid mine drainage was found in 20 U.S.C. § 1256(b)(l0)(A), and regulations thereunder, and reported in OSM, Acid Mine Drainage Policy Team, Policy Statement Avoiding and Controlling Acid Mine Drainage (Sept. 28, 1994), discussed in B. Sturgill & K. M. Poland, Acid Mine Drainage: Balancing Environmental Protection and Mining Realities, 10 J. NAT. REsOURCES & ENVTL. L. 217, 218-19 (1994-95).

270. The discussion following the comment was inaudible and, therefore, could not be transcribed and printed.

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