Kentucky Southern Coal Corp. v. Kentucky Energy & Environment Cabinet

SCOTT, J.,

dissenting:

I must respectfully dissent as I am perplexed as to how the majority can conflate deep mining with surface mining and then create a “bona fide property dispute” based solely upon an “expired” 18.1 acre surface mining lease necessary only for surface mining as per KRS 381.940, later § 19(2) of the Kentucky Constitution.27 In *812fact, § 19(2) of the Kentucky Constitution specifically provides, in regard to the deep mining permit renewal sought here, “that the mineral estate be dominant to the surface estate for the purposes of coal extraction by ... the method or methods of commercial coal extraction commonly known to be in use in Kentucky in the area affected at the time the instrument was executed.”

Not one of the majority would dispute that underground or deep mining was commonly known in all of Kentucky on the date of the coal severance deed involved here in September of 1936;28 neither do I suspect that any of the majority would question the relevancy of the surface mining lease granted by Judge Spain in his agreed resolution of the parties’ mineral ownership and surface mining rights litigation in Hopkins Circuit Court in March of 198529 to the right to deep mine the same coal. “ ‘Strip mining’ means the breaking of the surface soil in order to facilitate or accomplish the extraction or removal of minerals ...; but shall not include ... the surface effects or surface impacts of underground coal mining.” KRS 350.010(2).

In underground mining, access is facilitated to the coal seam for entry by cutting a highwall either into the hillside, if the coal seam is above drainage (above the creek), or by cutting a pit or sloped entry into the valley if the coal lies under drainage (under the creek level). These cuts have to be sufficient to create a reasonably sheer and safe highwall around and above the deep mine entries into the coal seam (generally three or four) so as to lessen the risk of the falling of loose rock upon the miners as they enter and leave the mine mouth. This mining activity, necessary to access and face up a deep mine for entries into the vein of coal, has never — to this date — been held to be “strip mining” for purposes of KRS 381.940, or its successor, § 19(2) of the Kentucky Constitution. See Hazard Coal Corp. v. Knight, 325 S.W.3d 290, 300, n. 7 (Ky.2010) “ ‘Section 19(2) was intended and should be applied herein only to prohibit strip mining operations conducted pursuant to broad form deeds in the absence of the surface owner’s consent.’ ” (quoting Karst-Robbins Coal Company, Inc. v. Arch of Kentucky, Inc., 964 S.W.2d 419, 425 (Ky.App.1997)).

*813And, never before has a Kentucky court of this stature required a mineral owner to secure the written permission of the surface owner, that is to pay, to access its coal reserves under that tract for deep mining purposes. To the contrary, the rule as to deep mining has always been:

The owner of mineral has of course the right to remove the same, and a grant or reservation of minerals carries with it as incidents a right to open a mine by sinking shafts, and the right to use such lands as are necessary in getting out and removing the minerals, and generally to employ all the necessary appliances requisite to the proper working of the mines.

Imperial Elkhorn Coal Co. v. Webb, 190 Ky. 41, 225 S.W. 1077 (1920); see also Wiser Oil Co. v. Conley, 346 S.W.2d 718, 721 (Ky.1960) (“There is a sound basis for the rule that a deed or lease of minerals carries with it the right to use as much of the surface, or other property, as may be reasonably necessary to exploit the minerals.”); Wells v. N.E. Coal Co., 255 Ky. 63, 72 S.W.2d 745 (1934); Case v. Elk Horn Coal Corp., 210 Ky. 700, 276 S.W. 573 (1925); Himler Coal Co. v. Kirk, 205 Ky. 666, 266 S.W. 355 (1924); McIntire v. Marian Coal Co., 190 Ky. 342, 227 S.W. 298 (1921); Scott v. Laws, 185 Ky. 440, 215 S.W. 81 (1919). This, of course, includes sufficient surface distance, space, and access for safe shaft or slope entry, equipment storage and repair, material handling and storage, including coal handling and cleaning facilities, power and telephone lines, roads, bath houses and parking for the miners, and other reasonably necessary structures and uses.

In instances such as this, “[t]he surface covers the mineral estate, and as a result, there is inherent in the mineral estate a right of access in and through the surface to the minerals. Of what value is a mineral if it cannot be mined? The surface owner has no right in the minerals; the mineral estate is therefore considered to be the dominant estate, and the surface estate is the servient one.” Akers, 736 S.W.2d at 297.

Here, the scope of review for administrative actions requires the decision be affirmed if there is substantial evidence of probative value to support the agency’s factual findings and if it correctly applied the law to the facts. Kentucky Retirement Systems v. Bowens, 281 S.W.3d 776 (2009); Competitive Auto Ramp Services, Inc. v. Kentucky Unemployment Ins. Com’n, 222 S.W.3d 249 (Ky.App.2007). And, as to its findings, as long as there is substantial evidence in the record to support the agency’s decision, a reviewing court must defer to the agency, even if there is conflicting evidence. 500 Associates, Inc. v. Nat. Resources and Env. Protection Cabinet, 204 S.W.3d 121 (Ky.App.2006). The problem here, however, is one of the correct application of law. To check the application of law, we must know the essential facts.

In this instance, the coal and its mining rights were severed from the remainder of the estate by a severance deed dated September 12, 1936. This deed clearly reserved rights against the then-purchaser of the surface, Walter Crick, to recover the coal by a then-known method of removal, i.e., deep mining, ignoring any issue of strip mining, to wit:

But there is nevertheless reserved and excepted from all lands hereby conveyed all the coal and other mineral and the mining and mineral rights and privileges, the right of subjacent support, and the rights of way for manways, air-shafts, drainage shafts, drains, pipelines, power lines, railroads, and railroad switches as may be convenient or necessary for the working or development of the Norton coal mines.

*814Years thereafter, a subsequent surface owner, Harold Bandy, came to believe he owned the coal and mining rights as well as the surface. This led to several law suits filed by the then coal owner, Norton Coal Corporation, against the Bandys in 1984 — one for adjudication of its mineral ownership of the coal and another for slander of its mineral title.30 On July 14,1984, however, KRS 381.940 intervened in the circumstances — restating the rules for construction of mineral deeds in regard to the right to strip mine the surface to remove the coal.31

The record reflects the original permit, including Increment Number Two in issue here,32 was originally issued to Norton Coal on December 17, 1984. It contained the Bandy surface property — later to become the Reynolds property — and contained 17.2 acres of “area mining”33 along with the highwall necessary for the face up to access approximately 250 acres of underground (deep) mining. Moreover, the hearing officer specifically found that this Increment Number Two was a means of egress and ingress to the underground (deep) mining works for this permit. This finding was accepted by the Cabinet in its order ultimately denying renewal of the permit on December 16, 2005.

Going back, however, to the litigation between Norton Coal and the Bandys in the mid-1980s, the matter was ultimately settled by an agreed judgment signed by then Hopkins Circuit Court Judge, Thomas B. Spain, dated March 13, 1985. This *815agreed judgment settled the disputes between them, recognized Norton Coal’s ownership of the coal, and, as agreed, granted Norton, later Kentucky Southern Coal Corporation, a fifteen year surface lease from the Bandy’s sufficient to comply with then-applicable KRS 381.940 and other applicable mining laws34 aside even assuming that strip mining was not a recognized method of coal recovery in western Kentucky in 1936. United States v. Stearns Co., 595 F.Supp. 808, 811 (E.D.Ky.1984) (“There also had been strip mining in other distant areas, such as western Kentucky, Ohio and Illinois, before 1937.... ”). For this, the Bandys were paid $27,500.

Appellant, Kentucky Southern Coal Corporation, thereafter acquired the mining rights and permit from Norton Coal and in July of 1999 sought a renewal for the permit. The permit’s expiration date was scheduled for December 17, 1999. Thereafter, in 2000 the Reynoldses acquired the Bandys’ property and — wanting, but not getting another $12,500 for a five-year extension of the surface lease — filed a protest letter to the renewal application asserting Appellant’s lack of legal access to Increment Number Two of the permit notwithstanding that neither § 19(2) of the Kentucky Constitution nor Ward v. Harding, 860 S.W.2d 280 (Ky.1993) had changed a mineral owner’s right to access coal through the surface owner’s estate for deep mining purposes.

In point of fact, § 19(2) validates it, to wit: “that the mineral estate be dominant to the surface estate for the purposes of coal extraction by ... the methods of commercial coal extraction commonly known to be in use in ... Kentucky in the area affected at the time the instrument was executed.” No one disputes that deep mining was prevalent in western Kentucky long before the severance deed in 1936!

Thereafter, notwithstanding that the Reynoldses had withdrawn from the fray following their divorce and sale of the property,35 on December 16, 2005, the Cabinet, upon recommendation of the hearing officer, adopted his report and findings and denied the permit renewal application on grounds that Kentucky Southern had failed in its burden to establish its legal rights to mine the coal under the surface of Increment Number Two — six years after the filing of the application for renewal.

Admittedly, KRS 350.060(3)(d) requires an application for a permit, or renewal, to state “[t]he source of the applicant’s legal right to mine the coal on the land affected by the permit.” However, KRS 350.060(12) requires that “[t]he cabinet shall recognize the distinct differences between the surface effects of underground mining and strip mining....”

And, contrary to the assertion of the Cabinet, the Franklin Circuit Court, the Court of Appeals, and the majority of this Court that Appellant bore the burden of proof here on this application for permit renewal as to its rights to enter upon the *816surface of Increment Number Two, the law is that “[a]ny valid permit issued ... shall carry with it the right of successive renewal upon expiration with respect to areas within the boundaries of the existing permit” and, upon such an application for renewal, “the burden shall be on the opponents of [the] renewal ” subject to certain findings of the Cabinet. KRS 350.060(18); see also 405 KAR 8:010 § 21(6)(a) and (b).36

Here, Appellant filed the severance deed under which it indisputably had the rights of entry upon and use of the surface property of Increment Number Two for all reasonable purposes for deep mining. This includes the necessary box cut to get to and face up the coal seam and highwall to mine the 250 acres of deep mining covered by this Increment. It had a valid permit to do so and filed its renewal application prior to the expiration of the original permit. And, on renewal, the burden is on the opponent of the renewal, not the proponent.

Moreover, the use of the “expired” surface lease, agreed to by the parties and Circuit Judge Spain as a means of complying with the newly emerging surface mining changes announced under KRS 381.940, to suggest that, under the circumstances, Norton Coal intended to give up its deep mining rights to the property is ingenious at best, but totally improper under the burdens established by law. This is especially true given the disappearance (or failure to appear) of anyone who could be the subject of a disparagement of title suit for the lost value of the coal involved over the fourteen years this matter has trundled through this maze.

All said, it is a clear misapplication of law and thus, I must strongly dissent. I would reverse and remand this matter to the Cabinet to grant the renewal of the permit.37

VENTERS, J., joins.

. KRS 381.940, effective July 13, 1984, read:

In any instrument heretofore or hereafter executed purporting to sever the surface and mineral estates or to grant a mineral estate or to grant a right to extract minerals, which fails to state or describe in express and specific terms the method of coal extraction to be employed, or where said instrument contains language subordinating the surface estate to the mineral estate, it shall be held, in the absence of clear and convincing evidence to the contrary, that the intention of the parties to the instrument was that the coal be extracted only by the method or methods of commercial coal extraction commonly known to be in use in Kentucky in the area affected at the time the instrument was executed, and that the mineral estate be dominant to the surface estate only for the purposes of coal extraction by the method or methods of commercial coal extraction commonly known to be in use in Kentucky in the area affected at the time the instrument was executed.

(Emphasis added.) We held this statute unconstitutional in Akers v. Baldwin, 736 S.W.2d 294 (Ky.1987) as a legislative usurpation of judicial rights. However, our decision was superseded to an extent when the Kentucky Constitution was amended in 1988 to replace the invalidated statute. Section 19(2) of the Kentucky Constitution, approved November 8, 1988, reads:

In any instrument heretofore or hereafter executed puiporting to sever the surface and mineral estates or to grant a mineral estate or to grant a right to extract miner*812als, which fails to state or describe in express and specific terms the method of coal extraction to be employed, or where said instrument contains language subordinating the surface estate to the mineral estate, it shall be held, in the absence of clear and convincing evidence to the contrary, that the intention of the parties to the instrument was that the coal be extracted only by the method or methods of commercial coal extraction commonly known to be in use in Kentucky in the area affected at the time the instrument was executed, and that the mineral estate be dominant to the surface estate for the purposes of coal extraction by only the method or methods of commercial coal extraction commonly known to be in use in Kentucky in the area affected at the time the instrument was executed.

(Emphasis added.) How such an agreement would be relevant to a mineral owner's deep mining rights under its coal severance deed, however, is another question.

. In fact, just two years after coal was discovered in the United States, Dr. Thomas Walker discovered coal on one of his first trips into eastern Kentucky in 1750 and used it for a campfire. Seventy years later, in 1820, the first commercial coal mine opened in western Kentucky. It was not until 1900 that coal was mined commercially in eastern Kentucky. http://en.wikipedia.org/wiki/coal-mining-in-kentucky (last visited April 5, 2013).

. Judge Spain was well aware of the legal differences between deep mining and strip mining, as he was one of the majority of four in Ward v. Harding, 860 S.W.2d 280 (Ky.1993) that upheld § 19(2) of the Kentucky Constitution against challenges.

. The slander of title action was dismissed as part of the agreed settlement.

. This Court declared KRS 381.940 unconstitutional as an invasion by the legislature of judicial powers in Akers, 736 S.W.2d 294. KRS 381.940 was then readopted in November 1988 as § 19(2) of the Kentucky Constitution.

. Because of the expensive reclamation bonding costs, mining permits are generally divided into increments of projected work. These increments do not have to be bonded until the mining progresses to that geographical section of the permitted area at which time bonds for the projected reclamation costs have to be furnished before surface disturbance begins.

. Area mining is a method by which box cuts are made on relatively flat land and the overburden removed to get down to the coal seam. If the seam removal is to be by the surface mining method, the seam is removed and the machinery keeps the box moving forward, using the new overburden material removed ahead of it to fill up the box behind it. If it is for access to the coal seam (under drainage, of course) for deep mining purposes, a reasonably safe sloping road (slope mining) is built into the pit for travel and the coal seam is faced up under a reasonably safe highwall on one side of the pit and entry and mining by the deep mine method progresses. If the seam is relatively deep underground, then it is accessed by large straight-down shafts and elevators lower and raise the miners and materials (shaft mining) in and out of the coal seam

Interestingly enough, early in the hearing process and before they withdrew from the fray, the Reynoldses provided the Cabinet with a photograph showing a forty foot deep pit filled with water, still open on the property. This is consistent with the fact that this Increment Number Two had already been surface mined before and a box cut left for deep mining entry into the seam. But, this is highly unlikely, since the Cabinet’s inspectors had been on the property during its previous operations and have over flight videos of it and the Cabinet never asserted in the hearing that it had been surface mined previously by any method. Appellant, however, asserted Increment Number Two had never been surface mined. This, then, would mean the pit was a box cut only for deep mine access. Moreover, had there been previous surface mining on Increment Number Two and reclamation had not been completed, the Cabinet would be fully aware of this and would have issued citations for such failure. Only if the pit were there for permissive future deep mine access would they not have issued citations. This is consistent with the hearing officer’s findings.

. There are multiple large underground seams of coal in Hopkins County, Kentucky which are mined at different times and by different methods (some are slope mined and the very deep ones are shaft mined). Thus, any presumption that a mineral owner. — who indisputably has the legal right to enter the surface to deep mine its coal — would trade its rights to access all of its seams for access to only one (which it already has) would be unreasonable. This should be especially true where the opponent to the application for renewal has the burden of proof, as here. KRS 350.060(13).

. Neither did the new owners join the dispute although they were notified by the Cabinet of their consideration of the renewal application on their property.

. See also 30 U.S.C. § 1256(d), which reads: Any valid permit issued pursuant to this chapter shall carry with it the right of successive renewal upon expiration with respect to areas within the boundaries of the existing permit. The holders of the permit may apply for renewal and such renewal shall be issued (provided that on application for renewal the burden shall be on the opponents of renewal), subsequent to fulfillment of the public notice requirements ... unless it is established that ...

(A) the terms and conditions of the existing permit are not being satisfactorily met....

. I might add, if the Cabinet is really afraid of any other regulatory mining problems with the renewal, it can attach any mining conditions or restrictions to the permit on renewal as are lawful and appropriate. It always does.