Petition for Writ of Certiorari — Rith Energy, Inc. v. United States

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VUlIlLad5rcu 4 2002

Supreme Court of the United States

RITH ENERGY, INC.,

Petitioner,

THE UNITED STATES,

Respondent.

On Petition For A Writ Of Certiorari To The

United States Court Of Appeals For The Federal Circuit

PETITION FOR A WRIT OF CERTIORARI

WALTER H. FLEISCHER

1320 Old Chain Bridge Rd.

Suite 440

McLean, Virginia 22101

(703) 821-0613

MICHAEL BOos

4101 Chain Bridge Rd.

Suite 313

Fairfax, Virginia 22030

(703) 691-7717

RAYMOND D. BATTOCCHI

Counsel of Record

JOHN R. POWELL

VICKI A. PAISLEY

Gabeler, Battocchi & Griggs,

PLLC

1320 Old Chain Bridge Rd.

Suite 260

McLean, Virginia 22101

(703) 847-8888

Counsel for Petitioners

(1)

QUESTIONS PRESENTED FOR REVIEW

In a case claiming a regulatory taking of real property

leases:

1. When there is a total prohibition on any further use of

the leases, does the taking become non-categorical merely

because the owner was able to make limited use of the leases

prior to the taking?

If the taking is partial instead of categorical:

2. When the owner is prohibited from mining coal based

on a statutory application which was unforeseeable, and never

applied to any other miner in the state before or since, does the

owner lack reasonable investment backed expectations solely

because the statute existed before it acquired the leases?

3. Do various facts which show that the owner was

treated in discriminatory and unfair ways, and which otherwise

are relevant to several issues in a regulatory takings case, become

irrelevant because the agency’s permit denial is presumptively

lawful?

4. Did the Court of Appeals misconceive the legal

content of and misapply various factors relevant in a partial

takings case, including the economic impact on the property

owner and the character of the government’s action?

(ii)

PARTIES TO THE PROCEEDINGS

All parties to this proceeding in the United States Court

of Appeals for the Federal Circuit are listed in the caption.

CORPORATE DISCLOSURE STATEMENT

Rith Energy, Inc., has no parent corporations, and no

publicly held corporation owns 10% or more of its stock.

(111)

TABLE OF CONTENTS

QUESTIONS PRESENTED FOR REVIEW ............ (i)

PARTIES TO THE PROCEEDINGS ................-. (11)

CORPORATE DISCLOSURE STATEMENT ........... (11)

WP GP CORT EINES cc cccc ee ccevccessecersees (ili)

TABLE OF CITED AUTHORITIES ..........ceceeees (v)

pe ee. rr (vili)

ee |

Te ead s iy eee by bn dhe 0408 o |

CONSTITUTIONAL AND STATUTORY

PUP HO TUIEW TEED ccc ccecsecansecccess |

eee de ey as. 2

A. Introduction and Summary. ................. 2

B. Waterand Mining Acts. .........cccceeeess 3

C. Pormettiime ACHIVMIGS. 2. ibis eee eess 4

D. Rith Compared To Other Mines. ............. 9

E. Administrative And Judicial Proceedings. ..... 11

ee be ae re 12

G. Federal Circuit Decisions. .............6006- 13

REASONS FOR GRANTING THE WRIT ............. 15

I. THE RULING THAT THE TAKING WAS NOT

CATEGORICAL WARRANTS REVIEW. ....... 17

II. THE INVESTMENT BACKED

EXPECTATIONS RULING WARRANTS

NES a ee ae 19

(iv)

III. THE RULING THAT CLAIMS OF

DISCRIMINATORY TREATMENT AND

UNFAIRNESS CANNOT BE PRESENTED IN

A CASE WHERE THE GOVERNMENT'S

CONDUCT IS LAWFUL WARRANTS

i Ra BAM ae eRe AED Pere 21

IV. |THE COURT OF APPEALS’ APPLICATION

OF OTHER PENN CENTRAL FACTORS

WED TEs Sok cventvnsceedessiees 24

CIE boc vet dcwecesteurv reieseeenceneaeys 26

(Vv)

TABLE OF CITED AUTHORITIES

Cases: Page

Armstrong v. United States, 364 U.S. 40 (1960) ......... 16

Babbitt v. Youpee, 519 U.S. 234 (1997)... 0.0.00... passim

Concrete Pipe & Prods. v. Constr. Laborers Pension

Fru, Sie ie. Gn CORE oes 5 hen eee anak eee 18

Creppel v. United States, 41 F.3d 627 (CA Fed. 1994) .. 13

Eastern Enterprises v. Apfel, 524 U.S. 498 (1998) ....... 22

Good v. United States, 189 F.3d 1355 (CA Fed. 1999),

cert. denied, 529 U.S.1053 (2000) ................. 13

Hodel v. Irving, 481 U.S. 704 (1987) .........0.0.5. passim

In re: Surface Mining Regulation Litigation,

Gi7 F.26 1SSO GA DA. TWO) 6 scceceeesdvuts cease

Keystone Bituminous Coal Ass'n. v. DeBenedictis,

GO UE. SIO CLPED xcses fe te ae 18

Lucas v. South Carolina Coastal Council,

See Ue. Fe CIPO) vec dene kassseuesisewiere 17

M & J Coal, Inc. v. United States, 47 F.3d. 1148

(CA Fed. 1995), cert. denied, 516 U.S. 808 ......... 13

Mitchell Arms vy. United States, 7 F.3d 212

(CA Fed. 1993), cert. denied, 511 U.S. 1106 (1994) ... 20

Palazzolo v. Rhode Island, 533 U.S. 606 (2001) .... passim

Palm Beach Isles Assocs. v. United States,

208 F.3d 1374 (CA Fed. 2000),

rehearing denied, 231 F.3d 1365 .............. passim

Penn Central Transportation Co. v. New York City,

S56 U.S. FRC 9 c0cee hea ateseesuree passim

Tennessee v. Champion International Corp.,

709 S.W.2d 569 (1986), vacated on other grounds,

SFOS. TORS Tere. Sd aveevseexneectecee cree 3

(vi)

United States v. New River Collieries Co.,

PGE ia DUR URE keke a aden eases rere iiee 18

United States v. Sioux Nation of Indians,

SED UE. FF Cee «on Sat ewen ees ieee 18

West Virginia Mining and Reclamation Ass'n v.

Babbitt, 970 F.Supp. 506 (S.D.W.Va. 1997) .......... 12

Statutes:

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yi 2Uk Pom oo | rete ran ere 12,17

ae Ue 0 WE Es 6 600 h0onedesssandaeseeaee 12

CRE Se er et ry rr 3

Oe Wis. MS 60.000 0necseis ieee 4

A a LO By | rrr rere re 4

cote fem Bee) ik) er rrer rr ees mene: o

bie Pee ae rr re rere rise im o

PRR Rom Be ee 4

20 UBL... & VD os be caceuccneevewereeven 4

30 U.S.C. § TAGS IGMANE) occ cccvcvesuncecvess 4,22

Des BEET 600 0000509654440 ee 8

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Fe Uda: 6 TST HD occ eeseecuves Siceeeeennean 7, 25

oe USK. BER e G obec ndasakestavenveceses eee 8

SOU. © Te hxc 0 sneesinescrsens ees 22 7

RUE Te i ee rrr re ao etc er oe 3 |

33 U.S.C. § 1342(a)(1). oc ccc ceccceccceucceecseeeees 3 |

USC. C1 | ooo 3 |

3) UA DE: vans cvesnveuoueesucee ores 3

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Fel ee SD be des we ae RK A eae ere ees 12

Be en 2 AO Shae bak keto eee enecn sehen erei 3

Pe Sa ee ne coer debe akeh inches 21

Pa, GE OD PET 6 o. 6.0 G oe ccscwnceueevctsuse. 3

WO Ce BEE 6 6 o's cc nccnsdccudhevcoucns 3

Ce Re eo en bene ceeSbee vekeieuzscln 3

Federal Water Pollution Control Act,

Bs og BF 2 ae passim

Surface Mining Control and Reclamation Act of 1977,

Bg ee a eae passim

Tennessee Water Quality Control Act of 1971,

Tenn. Code §§ 69-3-101, et seg. .........0.045. passim

Regulations:

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See PR oo Sh Oh 4,22

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ee IS hone ndVernesssee vaewnececacear 8

Se evs Sos bacaweéucacnveduscaestsisks 8

GPG koa nsacacddenncdeuunveuneeveaseseata 3

i te a OO re 22

Ge I ob 60s 504s dda be deveccenewedencbees 3

ee ek Se rr re eee 4,22

50 FR 41305 (Oct. 9, 1985) .... 0... cece ccecceccceuees 3

(vill)

TABLE OF APPENDICES

Page

Appendix A —-— Opinion of the United States Court

of Appeals for the Federal Circuit Dated and

Entered November 5, 2001 .............ccccccccccccccssssccseees la

Appendix B — — Notice of Entry of Judgment and

Opinion of the United States Court of Appeals

for the Federal Circuit Dated and Entered

ais HE ciscuddccdaniaiucniamedtsaanaieinecindanesaabiains lla

Appendix C —— Opinion and Order of the United

States Court of Federal Claims Dated and Filed

Bs Fe sictashesienianiiaticdeasaacaidsieanelaianinbbinnsdatooniads 28a

Appendix D —— Opinion of the United States Court

of Federal Claims Dated and Filed June 25, 1999 ... 30a

Appendix E — — Opinion of the Interior Board of Land

Appeals, dated October 24, 1989 woe eeeeeeees 46a

Appendix F —-— Opinion and Decision, United States

Department of the Interior, Office of Hearings

and Appeals, Before an Administrative Law Judge,

Ny I I aia als sacticaie caea cailaeeamtebiueen 64a

Appendix G —— Federal Water Pollution Control Act, 33

U.S.C. §§ 1251 et seg. (2001):

Bs ID ~ scesccisiesocccieninseshicnuisosibtuiins 109a

ee ae UID | vhinibiacdeecssarcisvainiiienseitnlesiian 109a

ie CE» Siistndiiicesissitlesnbendiinadiaiiiaenns 109a

cs TINE sncntisitennnnsinidicreniinsecntmincdens 110a

es, RINE circtdtewinintsnnssnnitbesatnnnionnisten 110a

FN EO sitentetirincseninniniieininarsenieainnioonie llla

Ee er

(ix)

Appendix H — — Surface Mining Control and Reclamation |

Act of 1977, 30 U.S.C. §§ 1201 et seq (2001):

Bias ENED - scincesunveinnnsndsianetionivascsintnans 112a

Se ce ED ddnsesissteccinceonnenvocinbexiebemasens 112a

Be Bere SD © ikniscilictaseieersvanestainbbvareceesaien 112a

Be RITE sttantvctasstonininseisiareininienesees 112a

SRI IIE sss ius tadacckdaapoupniectansiends 113a

Fe ie SD . sssdisicisicinniacisensiuniostnideteeee 1l4a

ee BD» srctennsintendieiacteidaeentncsionsss 115a

SIE © dacetasiecsinsecdeenesinerinexavanssects 1l6a

Appendix I — — Tennessee Water Quality Control Act of

1971, Tenn. Code §§ 69-3-101, et seq. (2001):

ON tk sasiicncnsectatesnsensincninesesaninstsnenesvereniaes 117a

BND ciserensecnintetsintsacsrecsaniaceneseossecnsensesseass 117a

MON hiniscndscsaniesntescrsennstectsabinisiaysttinnnpnaiines 118a

OE choo pscencssensnesizentanaevtatscsustinecsveesesserears 118a

Appendix J — — Code of Federal Regulations:

30 CFR § 715.14(j)(1) cccccsseesscsssessssssesssssseees 120a

BO CIR G TUS AIA) cecccscscccsescsonecsscsnssonsonserse 122a

ee aR 123a

SF a sccsnsvcicascacosenesosseasec 124a

30 CFR § 816.41(b)(1). csssssssscssssseessssseersssseees 125a

DOCTT B BIG AMEND, cccsescincssceccosocsonsesecsesss 125a

DIT CONN. crectssnccrserccteserevsssssesst 126a

SN TI oasis icesecinesitccnsseseee 126a

See | EEE NOS eet TRAITS 127a

Pee, <a aa een 127a

Appendix K —-— Memorandum In Support of

Plaintiff's Motion To Reconsider And Alter Or

Amend Judgment, Dated and Served July 9, 1999 ... 13la

(x)

Appendix L —— Order, United States Court of Appeals

for the Federal Circuit, Dated and Filed

re A ot lo ee eles hee ae ws 134a

PETITION FOR A WRIT OF CERTIORARI

Rith Energy, Inc. (“Rith”) respectfully petitions for a writ

of certiorari to the United States Court of Appeals for the Federal

Circuit.

OPINIONS BELOW

The two opin.ons of the United States Court of Appeals

for the Federal Circuit (App. la-27a)' are reported at 247 F.3d

1355 (CA Fed. 2001), and 270 F.3d 1347 (CA Fed. 2001). The

two opinions of the United States Court of Federal Claims (App.

28a-45a) are reported at 44 Fed.Cl. 108 (1999), and 44 Fed.Cl.

370 (1999).

JURISDICTION

The judgment of the United States Court of Appeals for

the Federal Circuit was entered on May 2, 2001 (App. 11a). A

timely petition for rehearing was denied by order entered

November 5, 2001 (App. 134a, la-2a, 10a). The jurisdiction of

this Court is invoked pursuant to 28 U.S.C. § 1254(1).

CONSTITUTIONAL AND STATUTORY

PROVISIONS INVOLVED

The Fifth Amendment provides: “nor shall private

property be taken for public use, without just compensation.”

The relevant provisions of the Federal Water Pollution

Control Act, 33 U.S.C. §§ 1251 et seg.; the Surface Mining

Control and Reclamation Act of 1977, 30 U.S.C. §§ 1201, et

seq.; regulations implementing both Acts; and the Tennessee

Water Quality Control Act of 1971, Tenn. Code §§ 69-3-101, et

seq., are reprinted in the Appendix at 109a-130a.

' "App." references are to Appendices A to L, infra, pp. la-134a.

"JA" references are to the Joint Appendix filed in the Court of

Appeals. Petitioner has requested that the Clerk of the Court of

Appeals send one copy of the Joint Appendix to this Court for

lodging. :

STATEMENT OF THE CASE

A. Introduction and Summary. After purchasing two

coal mining leases in Tennessee, petitioner obtained a National

Pollutant Discharge Elimination System (“NPDES”) water

discharge permit under the Federal Water Pollution Control Act,

commonly called the “Clean Water Act,” 33 U.S.C. §§ 125] et

seq., and a separate mining permit under the Surface Mining

Control and Reclamation Act of 1977, 30 U.S.C. §§ 1201 ef

seq. (1988) ("SMCRA"). After Rith began mining, an elected

official and certain citizens objected. In 1986 the Interior ~

Department’s Office of Surface Mining (“OSM”) suspended

petitioner’s mining permit because its mine had the “potential” to

generate Acid Mine Drainage (“AMD”). The suspension was

administratively upheld on the ground that the federal mining act

did not allow a miner to treat AMD before discharge, but instead

prohibited mining which would result in the generation of AMD

in the first instance. Rith never discharged any AMD from its

site, and always complied with its NPDES water permit.

Petitioner was prohibited from mining on a ground which

never was applied to any Tennessee miner before, and never has

been successfully applied to any such miner since. AMD has

been generated in Tennessee since the nineteenth century. In the

mid to late 1980s numerous miners in Tennessee generated actual

AMD, and discharged it in accordance with NPDES permits.

OSM routinely granted them permits to mine. OSM also granted

such permits after Rith’s permit was denied. In 1997 OSM

acknowledged, contrary to its position in Rith’s case, that the

mining act allows treatment of AMD during mining and

reclamation. Throughout the 1980s, OSM recorded hundreds of

violations of NPDES permits by miners, many for discharging

AMD in excess of permit limits. OSM never revoked or

suspended the mining permits of any of these violators. Unlike

these polluters, petitioner always complied with its NPDES

permits.

The Court of Appeals ruled that the taking was not

categorical; and that petitioner could not recover for a partial !

ee ee

taking because it was subjected to a lawful application of a statute

which pre-dated its acquisition of title, and therefore lacked

reasonable investment backed expectations. The Federal Circuit

also ruled that various of petitioner’s fairness arguments — —

including that it was subjected to an unforeseeable and

discriminatory application of the mining statute -- — were

irrelevant because the permit denial was lawful.

B. Water and Mining Acts. The Clean Water Act, as

amended in 1972, prohibits “the discharge of any pollutant by

any person” except in compliance with the Act, id. § 1311(a),

and provides for the issuance of NPDES permits to discharge

pollutants, id, § 1342(a)(1). In 1985 the Environmental

Protection Agency (“EPA”) promulgated regulations under the

Clean Water Act applicable specifically to coal mines, which

impose precise limitations on the discharge of AMD. 40 CFR

434.10, 30-35, 50 FR 41305 (Oct. 9, 1985).

The NPDES permit program may be administered by the

States, which may pass state laws which are more, but not less,

stringent than the federal statute. 33 U.S.C. §§ 1342(b)-(c),

1370. At all relevant times, Tennessee issued NPDES permits

under its own statute.? The Tennessee Water Quality Control

Act of 1971, as amended, Tenn. Code §§ 69-3-101, et seq.

(“State Act”), makes it unlawful “[t]o discharge any substance

into the waters of the state . . . unless such action has been

properly authorized, id. § 69-3-114(a), orto alter “the properties

of any waters” of the State “except in accordance with the

conditions of a valid permit.” Jd. § 69-3-108(b)(1). The State

Act defines “waters” to include “all water . . . on or beneath the

surface of the ground. . . .” § 69-3-103(33).

In SMCRA, enacted in 1977, Congress sought to

“minimize so far as practicable the adverse . . . environmental

effects of... mining operations;” 30 U.S.C. § 1201(e), while

? See Tennessee v. Champion International Corp., 709 S.W.2d

569, 574 (1986), vacated on other grounds, 479 U.S. 1061 (1987).

“strik[ing] a balance between protection of the environment

. .. and the Nation’s need for coal as an essential source of

energy,” id., § 1202(f).

SMCRA requires a permit to mine. /d. § 1256(a). A

permit application must contain, inter alia, a determination of

the probable hydrologic consequences of the mining and data

relevant to that determination. Jd. § 1257(b)(11). With respect

to AMD, 30 U.S.C. § 1265(b) provides that “[g]eneral

performance standards shal! . . . require the operation as (sic) a

minimum to ----- (10) minimize the disturbances to the

prevailing hydrologic balance . . . by ----- (A) avoiding acid or

other toxic mine drainage.” Section 1265(b)(10)(A) requires

AMD to be avoided by such measures as “(i) preventing or

removing water from contact with toxic producing deposits”

and/or “(ii) treating drainage to reduce toxic content.” By 1980

OSM published regulations which required miners to minimize

the adverse effects of AMD, and bury toxic materials under at

least 4 feet of non-toxic material. 30 CFR 715.17(g)-(h),

715.14G)(1), 45 FR 6913 (Jan. 30, 1980). They did not

prohibit mining at sites with toxic materials, or the potential to

produce AMD.

C. Permitting Activities. AMD occurs when iron and

sulfur containing materials in the overburden (i.e., the materials

above the coal seam) combine with air and water to produce a

chemical reaction (JA 281). AMD has been prevalent in

Tennessee since coal mining began there in the nineteenth

century (JA 311-12, 284).

As of the mid to late 1980s, numerous mines in

Tennessee produced AMD. Some of these were large mines not

far from Rith’s site (JA 292, 296, 301, 306, 315-16). They

treated the AMD prior to discharge in accordance with NPDES

permits (JA 314, 367; see JA 193). Each of these mines

continues to create AMD today,’ and treat the AMD prior to

discharge from the property. Each continues mining today

pursuant to mining permits issued by OSM (JA 315-16, 367).

In 1985 East Texas Energy owned a coal lease, and had

nearly completed a mining permit application. It was prepared

by T.C. Miller, the principal engineer and president of a mining

consulting firm (JA 310). Miller advised petitioner that mining

conditions on the East Texas property were favorable, and that

no difficulties were expected in obtaining mining permits (JA

310-11, 349, 362). In June 1985, based in part on Miller’s

recommendation, petitioner assumed the partially completed

East Texas permit application (JA 349, 363), and acquired for

$35,000.00 both the East Texas lease, and the lease for a

contiguous property, which together covered about 250 acres of

land (JA 109-11, 112-14). The leases required petitioner to pay

a production royalty of between $2.00 and $2.50 per ton of coal

mined (JA 80, 91, 109-11, 112). One lease provided that in

case of “force majeure,” which included “unforeseeable events

...Suchas...acts of God... [or] inability to obtain necessary

permits or licenses,” the lessee’s obligations would terminate

(JA 83). The other Lease provided that the “Lessors make no

representations . . . of the quantity, quality, or capability of

removal of coal, the same being a business risk . . . assumed by

Lessee” (JA 90).

To begin mining, Rith needed both NPDES and

SMCRA permits. In January 1986 the Tennessee Division of

Water Quality Control granted petitioner a five year NPDES

permit (JA 169, 344; see JA 311, 351, 343). It sets forth

specific limits on the contents of the water petitioner could —

discharge from surface of the site (JA 171, 344). It contains no

limitations on underground seepage from the area mined (JA

344, 169-187).

> “Today” means 1997 when the factual record in the Trial Court

was created.

In August 1985, petitioner applied to OSM for a permit

to strip mine approximately 89 acres of the leased property.

Petitioner intended to begin mining this acreage, and later

amend the application to include additional acreage as the

mining progressed (JA 350). The application contained a

“generic” Toxic Materials Handling Plan of the kind frequently

found in Tennessee permit applications (JA 312, 350, 122). It

also indicated that petitioner would monitor water in

underground wells at periodic intervals (JA 345).

OSM reviewed the application “thoroughly” and “with

special care” (JA 192). In January 1986, OSM issued petitioner

a five year SMCRA permit to mine (JA 163, 350). The permit

allowed petitioner to treat AMD generated during mining by

passing it through sediment ponds prior to discharge from the

property (JA 164 (Sec. 2), 311, 193). However, as is typical,

the permit does not specify or limit the amounts of AMD which

can be produced by mining, discharged from the property, or

allowed to seep into the ground (JA 163-66, 345). Promptly

after receiving the NPDES and SMCRA permits, petitioner

began mining (JA 350-51).

Around January 1986 Save Our Cumberland Mountains

(“SOCM”), an environmental organization, complained to OSM

about petitioner's mining (JA 351). OSM advised SOCM that

these complaints lacked merit (JA 153, 167, 189, 190, 191).

Thereafter, SOCM’s President organized a letter writing

campaign to various elected officials (JA 197-201). As aresult,

Senator Albert Gore, Jr. wrote OSM expressing the concerns of

his constituents regarding the Rith mine (JA 203). In March

1986, following these communications, OSM decided to

conduct a group tour to re-sample the overburden from the Rith

permit area (JA 313, 351, 205). The alleged purpose of the re-

sampling was to reassess the mine's potential to produce AMD

in the future (JA 351). At that time, the Rith mine had neither

produced nor discharged any AMD (JA 315, 353).

Before the group tour, OSM made site visits which gave

it no reason to question the data petitioner submitted with the

permit application. OSM also examined the overburden and

water, and found it not to be acidic or toxic, and found no AMD

problems (JA 195, 366-67). Because of numerous citizen

complaints, OSM inspected petitioner’s site much more

frequently than others (JA 366-67).

During the group tour an OSM geologist took samples

from the mine site (JA 205, 365). There is an unresolved factual

dispute between the parties as to the nature and import of these

samples. In OSM’s view, these samples showed pH levels 250%

more acidic than, and had a 500% neutralization variance from,

petitioner’s earlier samples (JA 12). Based on its samples, OSM

determined that petitioner’s mine had the “potential” for AMD in

the future (JA 205). Miller, petitioner’s consultant, stated in a

declaration that the samples were not taken in the normal manner,

but instead were “hand picked biased samples” which would

exhibit the most potential for AMD (JA 313).

On June 1986, without any notice or warning or a hearing,

OSM "temporarily suspended" petitioner’s mining permit (JA

219). The suspension was not based on any findings or

allegations that petitioner violated any of the terms of its mining

or NPDES permits, or created any AMD (JA 219). OSM issued

the suspension because petitioner's mine had the “potential” to

produce AMD (JA 352, 219).

30 U.S.C. § 1271(a)(2) provides that whenever a violation

of SMCRA may cause “imminent” environmental harm, OSM

shall “immediately” order a cessation of the offending mining.

Such orders must describe the violation with “reasonable

specificity,” and automatically expire within thirty days unless a

public hearing is held. Jd. § 1271(a)(5). OSM did not make any

findings of “imminent” harm, issued no orders which would

expire in thirty days, and did not invoke § 1271(a)(2).

OSM enforces other applicable legal requirements and

permit terms by issuing a Notice of Violation ("NOV") and, if the

violation is not corrected, a Cessation Order ("CO"). If a CO is

not obeyed, OSM imposes a series of fines and other sanctions.

30 U.S.C. §1271(a) and (c). OSM’s regulations provide that, if

there are non-imminent dangers or harms resulting from SMCRA

violations, OSM shall issue a NOV fixing a reasonable time for

abatement. 30 CFR §§ 843.12(a)-(b). OSM did nat issue any

NOVs or COs to petitioner regarding potential AMD (JA 353),

and could not do so because petitioner was not violating its

permit terms, or SMCRA or implementing regulations as then

applied.

When OSM suspended the permit in June 1986, it wrote

that petitioner could resume mining if OSM made a “finding that

there will be no adverse impact to the hydrologic balance” (JA

219). OSM made that finding before the permit was granted (JA

161-62, 160g). In December 1986, months after the suspension,

OSM again found that petitioner’s mine was “designed to prevent

material damage to the hydrologic balance” (JA 231). However,

despite the finding, OSM did not allow petitioner to resume

mining.

OSM later made explicit that it would not approve a

Toxic Materials Handling Plan (““TMHP”) which would allow

Petitioner to treat any AMD which might be formed before

discharge (even if all treated discharges met NPDES permit

limits) (JA 354, 234). Instead, OSM required petitioner to

propose a TMHP which would use impermeable pods to

completely isolate toxic and acid producing material so that no

AMD would be created (JA 324, 327, 316-17). OSM had never

before required such a TMHP of a permit applicant (JA 316-17).

In November 1987 OSM acknowledged that, while it would not

approve a permit revision unless petitioner came up with such a

TMHP (JA 237), OSM was "not aware of any plan that is

guaranteed to work" (JA 239).

Petitioner requested that OSM's Pittsburgh, Pennsylvania

office ("OSM Pittsburgh") assist in the development of a TMHP

(JA 315, 355). While touring the mine in November 1987, one

OSM Pittsburgh official stated:

“{J}Just what in the hell is wrong at this mine site because

I can’t see nothing and we have a hundred bigger sites

with a thousand times more problems than this site will

ever have!” [JA 355].

Another OSM official responded: “SOCM is interceding in this

permit” (JA 355-56; see also JA 356). In December 1987, OSM

Pittsburgh officials were of the opinion that “the toxic-forming

material [at Rith’s site] can be handled easily and in a straight

forward fashion” (JA 244-45).

At petitioner's request, OSM Pittsburgh developed a new

TMHP for the Rith site, and petitioner submitted the TMHP

developed by OSM Pittsburgh to OSM Knoxville (JA 315, 356).

In September 1988 OSM Knoxville issued a final decision

denying petitioner's Significant Revision No. 10 (JA 274, 315).

The TMHP OSM Knoxville required of petitioner, -even if

technically feasible, would have increased petitioner's mining

costs above the price for which it could sell the coal (JA 316).

For this reason, OSM's requirement had the effect of preventing

petitioner from mining any coal under its leases (JA 353-54).

D. Rith Compared To Other Mines. No actual AMD

was produced at any time while petitioner was mining the

property. OSM's suspension was based on the mine's potential

to produce AMD (JA 219, 314, 352). As of the mid 1980s,

numerous mines in Tennessee were producing actual AMD.

OSM did not suspend any of these permits, and continued to issue

further permits for these mines (JA 315-16, 367, 25-26). Before

petitioner, no other permit applicant ever was required to submit

a TMHP of the kind OSM required of Rith (which would prevent

AMD formation by using impermeable pods to completely isolate

toxic materials) in order to obtain a permit (JA 316-17, 26).

When reviewing Petitioner’s permit, OSM knew of no other mine

anywhere where such a TMHP was used (JA 20).

In the Trial Court, petitioner's mining consultant

submitted a declaration stating that, to the best of his knowledge,

to this day no mining permit in Tennessee other than petitioner’s

has been suspended because of potential AMD, and no other

miner has been required to use a TMHP of the kind OSM

required of Petitioner (JA 316-17). Despite ample opportunity,

respondent has been unable to identify any other instance in the

history of Tennessee mining when a permit was denied because

of the potential for AMD, or on the ground that SMCRA

prevented the mere formation of AMD during mining.

In early June 1986, after the group tour, the State

conducted an NPDES compliance inspection, and concluded

that petitioner was operating within the terms of its NPDES

permit (JA 207-08). In 1987, well after OSM suspended

petitioner’s permit, a State official visited the site to investigate

citizen concerns (JA 347, 232). He concluded that an AMD

reaction was “difficult to project” (JA 233), and recommended

no additional monitoring wells to protect human health or the

environment since “residents are very unlikely to experience

groundwater contamination” (JA 234).

Petitioner’s five year NPDES permit remained in effect

until 1991, when petitioner received another NPDES permit from

the State (JA 315, 357, 345). The only time any AMD appeared

on the property was in 1993, after a heavy rainfall, when a small

amount of AMD appeared at a point prior to entering the

sediment pond (JA 369). That AMD was not discharged (JA

317, 369). The sediment pond was designed to treat any AMD

before discharge (JA 319). Petitioner never discharged any

AMD, and always met all NPDES standards required by law

(JA 315, 357, 367).

Between 1984 and 1991 OSM recorded 566 violations

of NPDES permit limits by miners (JA 253-61, 276-79). These

violations were for either toxic waste, or for discharging AMD

in excess of permit limits (JA 253). None of these miners

suffered a mining permit suspension or revocation because of

excess AMD discharges, or even for toxic waste violations. To

this day, petitioner has never discharged AMD in violation of

its NPDES permit limits (or had any toxic waste violations) (JA

315, 357, 367).

In July 1991, an OSM employee stated to Petitioner,

“you got screwed with your permit by us, very unfair” (JA 357).

In March 1992, another OSM employee stated that there was

“better water on [Rith's] site than we drink out of in our office”

(JA 357). An OSM inspector stated that Petitioner definitely

was treated differently from various other Tennessee miners (JA

366-67).

When petitioner initially acquired its leases, the 250

acres contained about 385,000 tons of minable coal (JA 350).

Before the permit denial, petitioner mined about 35,000 tons, or

about 9% of the total, leaving some 350,000 tons, or 91% of the

total, unmined (JA 317; App. 20a, 3a). Petitioner’s investors

made a profit of about $500,000.00 on the 9% of the coal they

mined, and expected to make a similar profit per ton on the

remaining 91% of the coal (App. 20a; JA 352-53, 363).

E. Administrative And Judicial Proceedings. Petitioner

administratively appealed the permit denial. After an

evidentiary hearing, an Administrative Law Judge (“ALJ”)

ruled that petitioner did not show it could accomplish the post-

mining reclamation required by SMCRA (App. 103a-104a).

The ALJ also ruled that petitioner could not prove its mine

would not damage the hydrologic balance (App. 104a-106a).

The ALJ found a “high probability [of AMD seepage] into the

Sewanee Conglomerate aquifer” below the coal seam (App.

106a).

In 1989, the Interior Board of Land Appeals (“IBLA”)

affirmed. It stated that the present absence of any AMD “does

not mean that acid mine drainage will not occur in the future”

(App. 60a). The IBLA ruled that SMCRA does not allow

miners to treat AMD before discharge, but instead prohibits the

formation of AMD in the first place. Its ultimate ruling was

that SMCRA, as applied in this case, required not merely

minimizing the contact of water and toxic-producing deposits,

but “avoiding acid or toxic mine drainage.” (App. 62a;

emphasis supplied).

In West Virginia Mining and Reclamation Ass'n v.

Babbitt, 970 F.Supp. 506 (S.D.W.Va. 1997), decided some

eight years after the IBLA’s decision, OSM conceded that

SMCRA allows treatment of AMD, rather than complete

“avoidance,” during both mining and reclamation. /d. at 515,

517-18. OSM has not cited a single case in SMCRA’s 24 year

history (other than this one) where it succeeded in denying a

permit because of AMD potential.

F. Trial Court Decisions. In 1988 and 1989 petitioner

brought three suits in the United States District Court for the

Eastern District of Tennessee seeking various forms of relief.

All of petitioner’s claims, except for the takings claim, were

dismissed without a ruling on the merits (JA 17a, 38a-39a).

One suit was transferred to the United States Claims Court

(now the United States Court of Federal Claims (“Trial Court”))

under 28 U.S.C. § 1631. The Trial Court had jurisdiction over

petitioner’s regulatory takings claim under 28 U.S.C. §

1491(a)(1).

The Trial Court (per Judge Wiese) decided the takings

claim on cross motions for summary judgment. It entered

judgment for respondent, ruling that the high probability of

AMD seepage into the Sewanee aquifer was a public, statutory

nuisance because it was prohibited by the State Water Quality

Act (Add. 41a). The Court rejected petitioner’s argument that

it was always complying with the State Act and its NPDES

permit. It ruled, sua sponte, that if only State officials had been

informed of the high probability of harm to the Sewanee

aquifer, they would have “reexamine[d] the validity of the

permit they initially had issued” (App. 44a). Rith petitioned for

reconsideration on the grounds that it made full disclosure of all

information requested when applying for its NPDES permit;

that it always complied with its NPDES permits; and that under

the Clean Water Act, 33 U.S.C. § 1342(k), compliance with an

NPDES permit is deemed compliance with relevant provisions

of that Act (App. 131a-133a). Without addressing petitioner’s

arguments, the Trial Court denied reconsideration, and ruled

that the mine also was a common law nuisance (App. 28a-29a).

G. Federal Circuit Decisions. The Federal Circuit

affirmed, but on different grounds. Judge Bryson wrote for

himself, Chief Judge Mayer, and Judge Lourie. At the outset, the

Court of Appeals addressed the question whether the claimed

taking was categorical (prohibiting “all economically viable use”)

or partial (prohibiting some use but “leav[ing] the owner with

substantial viable economic use”) (App. 19a-20a). It concluded

that the taking was not categorical, even though petitioner was

prohibited from making any use of its leases after the final permit

denial in September 1988. It reasoned that the impact of OSM’s

action should be measured by looking at the extent of petitioner’s

ability to use its leases throughout the permitting process (App.

21a), and that petitioner was able to mine a significant amount of

coal that earned it a substantial profit (App. 22a).

The Federal Circuit noted that, under its prior decisions,

the consequence of concluding that the taking was not categorical

is that “Rith must show that it had a reasonable investment-

backed expectation that it would not be subject to [OSM’s

regulatory] restraints when it acquired the coal leases” (App.

23a). That court relied on its earlier decisions denying

compensation for takings for lack of investment backed

expectations (App. 23a-24a). See Palm Beach Isles Assocs. v.

United States, 208 F.3d 1374, 1379 (CA Fed. 2000), rehearing

denied, 231 F.3d 1365 (to recover for non-categorical taking,

Owner must show it “had distinct investment backed

expectations”); Good v. United States, 189 F.3d 1355, 1360-62

(CA Fed. 1999), cert. denied, 529 U.S. 1053 (2000) (reasonable

expectations required in “every regulatory takings case;” and no

reasonable expectations because owner “had both constructive

and actual knowledge that either state or federal regulations could

ultimately prevent him from building on the property”); M & J

Coal, Inc. v. United States, 47 F.3d. 1148, 1154 (CA Fed.

1995), cert. denied, 516 U.S. 808 (any state authorization to

mine is subordinate to national public health and safety

standards of SMCR#/ *: and Creppel v. United States, 41 F.3d

627, 632 (CA Fed. 1994) (one who buys with knowledge of

regulatory restrictions assumes risk of economic loss;

compensating him would confer windfall). The Federal Circuit

noted that, although OSM did not invoke 30 U.S.C. §

1271(a)(2), which allows OSM to suspend mining when there is

“an imminent danger to the health or safety of the public,” that

was the apparent source of its authority to issue the suspension

order (App. 24a). It held that Rith “could not reasonably have

expected that it would not be required to adopt potentially

expensive measures to avoid [AMD] if OSM determined that its

mining activities could result in the release of’ AMD (App. 23a),

or because there was a high probability that there would be AMD

into the Sewanee aquifer (App. 24a).

In the Court of Appeals, petitioner argued that its

investment expectations were reasonable because it was subjected

to an application of SMCRA which was unforeseeable,

prohibitively expensive, and discriminatorily applied to petitioner

alone.* The Court of Appeals did not address this argument.

Instead, it incorrectly characterized the argument as a challenge

to the lawfulness of OSM’s permit denial, and rejected that

argument (App. 25a-26a).

After this Court decided Palazzolo v. Rhode Island, 533

U.S. 606 (2001), Rith petitioned for rehearing and rehearing en

banc. Rith argued that, if the taking was only partial, investment

backed expectations was not a requirement, but instead one of

several factors to be considered; that Rith had reasonable

expectations; and that the nature of OSM’s actions supported the

conclusion there was a taking. The Court of Appeals ruled that

Palazzolo did not provide a reason for altering the Federal

Circuit’s earlier conclusion that petitioner lacked reasonable

investment expectations (App. 2a, 5a-8a). The Court of Appeals

stated that, although OSM’s action deprived petitioner of the

ability to mine about 91% of the coal it leased, petitioner still was

able to make a substantial profit in light of the price paid (App.

* Appellant’s Opening Br., pp. 47-56; Rep.Br. pp. 5-10.

3a, 8a-9a). It also ruled that OSM’s action was an exercise of the

police power which typically does not require compensation

(App. 9a). Finally, the Federal Circuit ruled that Rith’s various

claims of discriminatory treatment, political pressure, and related

matters were not relevant to the takings analysis. It ruled that

those claims should have been, or were, raised in the prior

administrative or judicial proceedings, and “are therefore not

properly presented in the context of [Rith’s] takings claim” (App.

10a). The Court of Appeals denied rehearing, and no judge voted

for rehearing en banc (App. 134a).

REASONS FOR GRANTING THE WRIT

The Court of Appeals has decided several important

questions of takings law which warrant review.

The Court of Appeals’ ruling that the taking here was

partial instead of categorical is unsound. It is undisputed that

when OSM finally denied a permit, petitioner’s entire leases

became worthless. Whether a taking is categorical should be

measured by the impact on the property at the time of the taking,

not uses made of it before then, and the fact that petitioner was

able to mine 9% of its coal before the taking should be irrelevant.

Prior decisions by the Court on this “denominator” question focus

on the restraint’s impact on the property existing at the time of the

taking, not uses made of it before then. This case presents a

suitable vehicle for the Court to provide further guidance on this

recurring question.

The Federal Circuit’s rulings on why petitioner could not

recover for a partial taking are far reaching and unsound. This

Court has made clear that in a partial takings case, where the

multi-factor Penn Central Transportation Co. v. New York City,

438 U.S. 104 (1978), analysis applies, investment backed

expectations is not a requirement which an owner must meet, but

instead one of several relevant factors for consideration. In both

Hodel v. Irving, 481 U.S. 704 (1987), and Babbitt v. Youpee,

519 U.S. 234 (1997), the Court held there was a partial taking,

even though the owners showed no investment expectations.

Under Palazzolo v. Rhode Island, 533 U.S. 606 (2001), it is

clear that the fact that an owner acquired title after a statutory

scheme is passed cannot, by itself, defeat a partial takings claim,

and is at most one factor for consideration. And the Court

frequently has noted that considerations of “‘fairness and

justice,” e.g., Penn Central, 438 U.S. at 123-124, quoting

Armstrong v. United States, 364 U.S. 40, 49 (1960), play a large

role in a takings analysis.

The Federal Circuit disregarded these decisions. Its ruling

that investment expectations is a requirement, instead of one

factor for consideration, is inconsistent with Jrving and Youpee.

Its ruling that petitioner could not have investment expectations

unless it showed “that it would not be subject to [OSM’s

regulatory] restraints when it acquired” its leases (App. 3a) is

equally mistaken. No owner acquiring after a statutory scheme

is in place could make this showing if it was subject to a lawful

application of the statute. The Federal Circuit’s ruling that

Rith’s claims of discriminatory treatment and unfairness could

not be raised in a takings case is quite far reaching and should not

be allowed to stand (App. 10a). These rulings, taken together,

mean that no owner can recover when it is subjected to a lawful

application of a pre-existing statute, no matter how objectively

reasonable its expectations had been, or how unfair that outcome

might be. This result cannot be reconciled with fundamental

aspects of this Court’s takings jurisprudence, and presents

important questions which should be reviewed.

The Federal Circuit’s application of other Penn Central

factors also warrants review. One factor is the economic impact

on the owner. Although OSM’s regulation wiped out 91% of the

property petitioner initially purchased, the Federal Circuit gave

that fact virtually no weight. The Federal Circuit’s justification

of OSM’s action in this case as an exercise of the police power

which requires no compensation, also is unsound. It is, to put it

mildly, a curious exercise of the police power to prevent a miner

from conducting an operation which is in full compliance with

the stringent provisions of the State Water Act, and the provisions

of SMCRA as it has been applied in every case but this one. This

Court should review the decision below to determine whether it

conflicts with this Court’s takings jurisprudence, and to provide

further guidance to lower courts called upon to apply the multiple

Penn Central factors.

This decision is from the Circuit in which all takings

claims for more than $10,000 against the United States must be

brought. 28 U.S.C. §§.1346(a)(2); 1491(a)(1). If allowed to

stand, it will make it extremely difficult —— if not impossible ——

for any owner who obtained title after a statute is passed to

recover for a partial taking.

I. THE RULING THAT THE TAKING WAS NOT

CATEGORICAL WARRANTS REVIEW.

Under the current state of the Court’s takings decisions,

it often is important to determine at the outset whether the

claimed taking is categorical, because all economically beneficial

use of the land has been denied, or partial, because some

beneficial use remains. Where the taking is categorical, the

government’s defenses are limited, and the owner’s investment

expectations are irrelevant. Palazzolo, 533 U.S. at 607. If the

taking is partial, then the Penn Central analysis applies, and a

court considers factors including the economic effect on the

landowner, the extent of interference with investment backed

expectations, and the character of the government action. Jd.

To determine whether a taking is total or partial the

Court must define the property interest against which the loss

of value is to be measured. This is the “denominator” problem.

Lucas v. South Carolina Coastal Council, 505 U.S. 1003, 1016

n. 7 (1992). While before OSM’s permit denial petitioner was

able to mine some 35,700 tons of the 385,000 tons initially on

its land (about 9% of the total) , at the time of that denial the

remaining value of Rith’s leases became worthless. The

relevant property interest in a case like this should be the

property existing at the time of the taking. In other words, the

“denominator” should be the 350,000 tons existing when the

permit was denied, and not the 385,000 tons Rith leased

initially.

Although this Court has not provided precise guidance

on how this issue should be resolved, it has addressed the issue

by focusing on the property existing at the time of the taking,

not uses made of it before then. See Keystone Bituminous Coal

Ass’n. v. DeBenedictis, 480 U.S. 470, 497 (1987) (inquiry

requires a comparison of “the value that has been taken from

the property with the value that remains in the property”);and

Penn Central, 438 U.S. at 130 (comparing use prohibited with

“value of the remainder of the[] parcel”). Concrete Pipe &

Prods. v. Constr. Laborers Pension Trust, 508 U.S. 602, 643-44

(1993) (parcel “could not first be divided into what was taken

and what was left” to show the taking of the latter was

complete), upon which the Federal Circuit relied (App. 21a), is

not inconsistent with Rith’s position. Petitioner’s argument is

that, at the time of the taking, everything was taken, and nothing

was left, so the taking is categorical.

Contrary to the view of the Court of Appeals (App. 21a-

22a), the fact that Rith was able to make a $500,000.00 profit

before it was barred from mining should have no bearing on

whether the taking was categorical. The significant fact is that

the lease was worth several million dollars when OSM prohibited

mining. The measure of compensation in a takings case is the

value of the property at the time of the taking, see United States

v. Sioux Nation of Indians, 448 U.S. 371, 387 n. 17 (1980), and

whether the owner made a profit before then is usually irrelevant

to that determination, United States v. New River Collieries Co.,

262 U.S. 341, 344 (1923) (owner’s cost, or profit or loss,

immaterial when it does not show market value). The same

principle should apply when determining whether a taking is

categorical. To illustrate, suppose Congress passed a law

effective today prohibiting the General Electric Co. or

Microsoft Corp. from hereafter transacting any business

anywhere. That would be a total taking, and would not become

partial because both corporations have been extremely

profitable to date. Nor would the taking become partial if

Congress delayed the effective date of the statute for a few

months.

The Court should grant certiorari to provide lower

courts with further guidance on how to determine whether a

taking is categorical.

Il. THE INVESTMENT BACKED EXPECTATIONS

RULING WARRANTS REVIEW.

A. Ifthe taking is partial, then the degree of interference

with the owner’s reasonable investment backed expectations is

relevant. E.g., Palazzolo, supra, 533 U.S. at 607. However, this

Court has made clear that, while investment expectations is a

relevant consideration in a partial takings case, it is not a

requirement an owner must meet. Hodel v. Irving, supra,

involved a federal statute barring certain Native American owners

of small interests in land from passing the property on to their

heirs by will or intestate succession. The taking was partial,

because the owners were free to sell or use their interests in any

way before death. 481 U.S. at 715. Irving applied Penn Central,

id. at 717, and concluded that the owners’ investment

expectations were dubious and unproven, id. at 715, but held

there was a taking. Babbitt v. Youpee, supra, addressed later

legislation on the subject. The Court again agreed that

investment expectations were not implicated, 519 U.S. at 239,

but ruled there was a taking. There can be no requirement of

proving investment expectations if a plaintiff can win without

showing any.

In its rehearing petition, in connection with its argument

that investment expectations is not a requirement in a takings

case, Rith emphasized the holdings of /rving and Youpee.°

Justice O’Connor’s concurring opinion in Palazzolo (533 U.S. at

618), upon which the Federal Circuit relied in denying rehearing

> Appellant’s Combined Petition for Rehearing and Rehearing En

Banc, filed July 5, 2001, pp. 1, 8.

(App. 6a), also noted the holding in Jrving. Yet the Court of

Appeals denied the petition without citing /rving and Youpee or

addressing this argument. While it did not cite these decisions, it

did deny rehearing based on “the precedents discussed in our

original opinion, which we do not believe have been undermined

by” Palazzolo (App. 10a). The Federal Circuit has given

investment expectations an unduly important role in takings

cases.

B. The Federal Circuit’s definition of reasonable

expectations for someone acquiring title after a statute is in place

also warrants review. There is a big difference between (1) a

tule, based on objective standards, and taking into account all

factors relevant to real-world commercial transactions, that a

plaintiff reasonably should have foreseen a regulatory result

prohibiting the use of property, and (2) a rule that, once a statute

is passed, anything goes, and a plaintiff's expectations become

unreasonable even if the prohibition is unforeseeable,

prohibitively expensive, and discriminatory. In ruling that

petitioner could not show that its investment expectations were

reasonable unless it showed “that it would not be subject to

[OSM’s regulatory] restraints when it acquired” its leases (App.

23a), the Court of Appeals effectively adopted the latter rule.

No owner acquiring title after a regulatory scheme is in

place, and subject to a lawful application of the statute, could

make this showing. By definition, whenever a permit is lawfully

denied to such an owner, the denial will be based on a statute pre-

dating the acquisition of title. And under the law in the Federal

Circuit, whenever an owner sues based on a permit denial the

lawfulness of the agency’s action must be presumed. E£.g.,

Mitchell Arms v. United States, 7 F.3d 212,215 (CA Fed. 1993),

cert. denied, 511 U.S. 1106 (1994); and App. 10a. (Ifthe permit

denial is set aside as unlawful, then the owner will be able to

mine or otherwise use the property). As a practical matter, under —

the standard applied by the Federal Circuit, very few owners

purchasing after a statute is enacted could show reasonable

investment expectations.

The Federal Circuit’s view of what is required to show

investment expectations is different from the Court’s. Justice

O’Connor’s concurring opinion in Palazzolo, which the Federal

Circuit cited for other purposes (App. 6a), explains that:

“Further, the state of regulatory affairs at the time

of acquisition is not the only factor that may

determine the extent of investment-backed

expectations. For example, the nature and extent of

permitted development under the regulatory regime

vis-a-vis the development sought by the claimant may

also shape legitimate expectations.” [533 U.S. at 618]

Under this view, it is clearly relevant that when petitioner

acquired its leases (and was advised by its expert that getting a

mining permit should be no problem) miners all over Tennessee

were allowed to generate AMD provided it was treated before

discharge, and petitioner was prohibited from mining on a ground

never before applied in Tennessee.°

The Federal Circuit’s investment expectations ruling goes

much too far and should be reviewed.

Il, THE RULING THAT CLAIMS OF

DISCRIMINATORY TREATMENT AND

UNFAIRNESS CANNOT BE PRESENTED IN A

CASE WHERE THE GOVERNMENT’S

CONDUCT IS LAWFUL WARRANTS REVIEW.

Throughout the proceedings in the Trial Court and the

Court of Appeals, Rith claimed that it was subjected to an

unforeseeable result, and treated unfairly in a variety of ways.

° State law also gave petitioner reasonable expectations that it

would have the same property rights as its predecessors in the chain

of title. Tenn. Code Ann. § 66-5-101 long has provided that:

“Every grant . . . of real estate, or any interest

therein, shall pass all the estate or interest of the

grantor . . ., unless the intent to pass a less estate or

interest shall appear by express terms. . . .”

The Federal Circuit ruled that petitioner’s discriminatory

treatment and other arguments were unpersuasive and, in any

event, are “not properly presented” in a takings case because the

Court assumes the underlying governmental action is lawful and

decides only whether there is a taking (App. 10a). This ruling

severely, and improperly, limits the ability of a takings plaintiff

to prove important parts of its case. It is fundamentally

inconsistent with this Court’s repeated indications that

considerations of “fairness and justice” guide the takings analysis,

and that it is essentially ad hoc and fact intensive. Eastern

Enterprises v. Apfel, 524 U.S. 498, 523 (1998).

Petitioner stressed in the Court of Appeals various legal

considerations which indicated that the result OSM reached was

legally unforeseeable.’ The Court of Appeals never addressed

” For example, SMCRA permits a miner to use “such measures

as ... (il) treating drainage to reduce toxic content... .” 30 U.S.C.

§ 1265(b)(10)(A)(ii) (emphasis added). It would make no sense to

let miners “treat[]” AMD before discharge if Congress intended to

prohibit the formation of any AMD in the first place. OSM’s

regulations applicable in 1986 -- and today -- clearly contemplate

that mining under toxic material will be allowed if the adverse

effects of AMD are minimized. See 30 CFR §§ 715.17(g)(1)-(6),

(h)(1)-(4), 715.14G)(1), 45 FR 6913 (Jan. 30, 1980). See also 30

CFR §§ 780.21(e), and 816.41(b)(1), (d)(1). OSM never has

published regulations providing that mining with the potential for

AMD is not allowed, or that AMD discharges complying with the

Clean Water Act are banned.

SMCRA also provides that nothing in it shall be construed

as modifying the Clean Water Act. 30 U.S.C. § 1292(a)(3). This

was deemed an “absolute prohibition” against the Interior

Department’s promulgating rules any more stringent than the EPA’s.

In re: Surface Mining Regulation Litigation, 627 F.2d 1346, 1367

(CA D.C. 1980); and to the extent EPA regulations give miners any

effluent limitation variances or exemptions, the Interior Department

cannot take them away. Jd. at 1366-69. The EPA promulgated

regulations applicable specifically to miners which allow discharges

of treated AMD. 40 CFR 434.30 et seq. The State, acting pursuant

to these regulations and its own Water Quality Act, issued Rith an

NPDES permit allowing the discharge of treated (fn. continued)

these considerations, presumably because of its view that they are

“not properly presented” in a takings case (App. 10a). Petitioner

stressed that it was prevented from mining through application of

a legal standard -- no AMD could be formed at the mine site —

~ which never was successfully applied to a Tennessee miner

before, or since. The Court of Appeals never addressed this, or

other related facts. But surely, in determining what

“expectations” are “reasonable,” the legal landscape existing at

the time the property was acquired, and whether the plaintiff was

Subjected to a discriminatory result, are highly relevant

considerations.

The Court of Appeals’ “not properly presented” ruling

hamstrings takings plaintiffs on issues other than investment

expectations. For example, petitioner noted that OSM had

recorded more than 500 NPDES permit violations by miners for

either excess AMD discharges, or toxic waste violations (JA

253-61, 275-79), and unlike Rith, which discharged no AMD,

none of these polluters suffered a permit suspension or

revocation. These facts undermine OSM’s claim that it was

acting in Rith’s case to protect the environment, instead of for

other reasons. According to one OSM official, the agency had

“a hundred bigger sites with a thousand times more problems

than this site will ever have” (JA 355). That surely is relevant

to any “fairness” inquiry. This Court has noted that “spot

zoning” (i.e., Zoning which treats one owner differently from

others similarly situated) is far more likely to constitute a taking

than even handed zoning. E.g., Penn Central, 438 U.S. at 132

and n. 28. Under the reasoning of the Court of Appeals it would

seem that, so long as the spot-zoning was not overturned as

unlawful, it could not be properly be used to prove a taking.

The above points are not a collateral attack on the

administrative determination that the permit denial was lawful.

AMD. Petitioner could not foresee that in its case, despite 30 U.S.C.

§ 1292(a)(3), OSM would ban the treated AMD discharges which

both the federal and state water statutes allow.

Petitioner does not dispute that it is bound by traditional issue

preclusion principles. To the extent any specific issues were

actually and necessarily litigated in the administrative

proceedings, and collateral estoppel principles apply, petitioner

is precluded from re-litigating those issues in this case. However,

in a takings case petitioner should be allowed to rely upon any

relevant factual or legal claim which it is not collaterally estopped

from making. Otherwise, any agency decision to deny a permit

which is not reversed on direct appeal will necessarily preclude

a takings claimant from making fairness and other arguments in

a takings suit.

The Federal Circuit’s ruling on the effects of a

presumption that the government’s conduct is lawful will greatly

narrow the rights of property owners, and should be reviewed.

IV. THE COURT OF APPEALS’ APPLICATION OF

OTHER PENN CENTRAL FACTORS WARRANTS

REVIEW.

Aside from investment expectations, other Penn Central

factors of particular importance are the economic effect on the

landowner, and the character of the government action. Penn

Central, supra, 438 U.S. at 124. The application of these factors

in this case also warrants review.

Regarding the economic effect on the property owner, the

Court of Appeals noted (App. 9a, 20a) that petitioner was able to

make a substantial profit (i.e., about $500,000.00) on its leases

before its mining terminated, and that its initial investment

consisted ofa relatively small ($35,000.00) outlay. (Rith also had

a much larger potential royalty obligation to the lessors, and of

course the need for capital expenditures to do the mining).* The

notion that an owner might lose his right to recover for a taking

® If allowed to mine, petitioner would have paid the lessors some

$800,000.00 in royalties (JA 80, 91, 350). A low initial purchase

price with high royalties later is a reasonable way to structure a lease

for a capital intensive mining operation.

OE Gel OMe el Oa en PE, .

merely because he previously made a profit, or because of the

form of his obligation to the lessor, is unsound.

Far more relevant is the fact that OSM’s action deprived

petitioner of the ability to mine about 91% of the coal it leased

(App. 3a, 8a-9a). A 91% reduction is, if not a total wipe-out, very

close to it. Whenever a property interest has been reduced to so

significant an extent, the scales should weigh heavily in favor of

the property owner, and it should be able to prevail by making a

lesser showing on the other Penn Central factors. See generally

Hodel vy. Irving, supra, 481 U.S. at 716-17 (taking away an

owner’s right to transfer at death property which he or she could

fully use during life a serious impairment of property rights).

On the question of the character of the government action,

the Federal Circuit’s ruling that OSM’s action was an exercise of

the police power which typically does not require compensation

(App. 9a) is far reaching, and unsound. For all the reasons stated

above, OSM’s actions and inactions are inconsistent with any

proper exercise of the police power. Further, police power

exercises should be defined by the terms and conditions of public

laws and regulations, not the novel agency application involved

here. OSM should not be permitted to claim the benefits of a

statute authorizing it to prevent imminent environmental harm,

when it fails to comply with or give an owner the benefits of that

statute. As noted supra, pp. 7-8, if OSM invoked 30 U.S.C. §§

1271 (a)(2), (5), it would have been required to specify the

alleged violations of SMCRA, and hold a public hearing within

thirty days or allow the mining to continue. When OSM

suspended mining, it never gave petitioner notice of any claimed

SMCRA violations, much less a hearing within thirty days.

This Court has “given some, but not too specific,

guidance to courts confronted with deciding whether a particular

government action goes too far and effects a regulatory taking.”

Palazzolo, 533 U.S. at 607. This case presents a suitable vehicle

for giving lower courts more specific guidance on how certain

Penn Central factors should be applied in a partial takings case.

Under the Penn Central analysis, there was a taking here.

* * *

The Court of Appeals has failed to follow legal principles

clearly set forth in this Court’s decisions, and placed new

roadblocks in the path of property owners seeking just

compensation. If allowed to stand, its decision will make it

extremely difficult for even the most deserving property owners

who acquire title after a regulatory scheme is in place to recover

from the United States.

CONCLUSION

Certiorari should be granted.

Respectfully Submitted,

WALTER H. FLEISCHER RAYMOND D. BATTOCCHI

1320 Old Chain Bridge Rd. Counsel of Record

Suite 440 JOHN R. POWELL

McLean, Virginia 22101 VICKI A. PAISLEY

(703) 821-0613 Gabeler, Battocchi & Griggs,

PLLC

MICHAEL Boos 1320 Old Chain Bridge Rd.

4101 Chain Bridge Rd. Suite 260

Suite 313 McLean, Virginia 22101

Fairfax, Virginia 22030 (703) 847-8888

(703) 691-7717

February 4, 2001

Counsel for Petitioners

23 es z

es AS XN

APPENDIX

Appendix A —— Opinion of the United States Court

of Appeals for the Federal Circuit Dated and Entered

November 5, 2001

RITH ENERGY, INC., Plaintiff-Appellant, v. UNITED

STATES, Defendant-Appellee. 99-5153

UNITED STATES COURT OF APPEALS FOR THE

FEDERAL CIRCUIT

270 F.3d 1347; 2001 U.S. App. LEXIS 25140

November 5, 2001, Decided

PRIOR HISTORY: Appealed from: United States Court of

Federal Claims. Judge John P. Wiese.

Original Opinion of May 2, 2001, Reported at: 247 F.3d

1355, 2001 U.S. App. LEXTS 7986.

COUNSEL: Raymond D. Battocchi, Gabeler, Battocchi &

Griggs LLC, of McLean, Virginia, filed a combined

petition for panel rehearing and rehearing en banc for

plaintiff-appellant. With him on the brief were John R.

Powell and Vicki A. Paisley. Of counsel on the brief was

Walter H. Fleischer, of Washington, DC.

Katherine J. Barton, Attorney, Environmental and Natural

Resources Division, Department of Justice, of Washington,

DC, filed a response for defendant-appellee. With her on

the brief was Susan V. Cook, Attorney. Of counsel on the

brief was Thomas A. Bovard, Attorney, Office of the

Solicitor, Department of the Interior, of Washington, DC.

Glenn Sugameli, Senior Counsel, National Wildlife

Federation, of Washington, DC, for amicus curiae National

Wildlife Federation.

Nancie G. Marzulla, Defenders of Property Rights, of

Washington, DC, for amicus curiae National Mining

Association.

JUDGES: Before MAYER, Chief Judge, LOURIE, and

BRYSON, Circuit Judges.

OPINIONBY: BRYSON

OPINION: ON PETITION FOR REHEARING

BRYSON, Circuit Judge.

Appellant Rith Energy, Inc., has filed a petition for

rehearing. The petition focuses principally on the Supreme

Court's decision in Palazzolo v. Rhode Island, 150 L. Ed. 2d

592, 121 S. Ct. 2448 (2001), a case that was decided two

months after the opinion in this case issued. Rith contends

that Palazzolo is contrary to the analysis in our opinion and

requires that the judgment be changed. We disagree. As we

read Palazzolo, it is not inconsistent with either the

judgment or the analysis in our opinion. We therefore deny

the petition for rehearing. /

l -

Rith first challenges our conclusion that the asserted

taking in this case was not categorical. We reached that

conclusion after noting that the suspension and subsequent

revocation of Rith's mining permit did not deprive Rith of

all value in its coal leases, since Rith was able to mine

approximately 35,700 tons of coal from the lease area, or

about nine percent of what it hoped to mine if its mining

permit had not been suspended and ultimately revoked. Rith

eT ee ee Le eee

suggests that the 91 percent reduction in the amount of the

coal that it expected to mine "has wiped out virtually all of

the property's value" and that the resultant taking, "if not

complete, [is] very close to it."

As to whether the claimed 91 percent reduction in the

amount of coal Rith has been allowed to mine constitutes a

categorical taking of Rith's property under its coal leases,

Palazzolo is distinctly unhelpful to Rith. The Supreme

Court held that because Mr. Palazzolo retained some

economic value in the regulated property, the denial of a

building permit in Mr. Palazzolo's case did not constitute a

categorical taking. In particular, the Court accepted the

State court's finding that Mr. Palazzolo's property retained

$200,000 in development value under the state's wetlands

regulation, as contrasted with Mr. Palazzolo's estimate that

the investment value of the property absent the wetlands

regulations would be approximately $3,185,000. Although

the value remaining in the property after the regulatory

action was only about six percent of the value that Mr.

Palazzolo expected to derive from the project, the Court

ruled that the remaining value was not "a token interest"

that left the property "economically idle." /2/ S. Ct. at

2464, 2465. The Court therefore rejected Mr. Palazzolo's

argument that he suffered a total, or categorical, taking.

The Court's ruling on that point is consistent with earlier

Supreme Court decisions in which the Court has held that

“mere diminution in the value of property, however serious,

is insufficient to demonstrate a taking." Concrete Pipe &

Prods. of California, Inc. v. Constr. Laborers Pension

Trust, 508 U.S. 602, 645, 124 L. Ed. 2d 539, 113 S. Ct.

2264 (1993), citing Village of Euclid v. Ambler Realty Co.,

272 U.S. 365, 384, 71 L. Ed. 303, 47 S. Ct. 114 (1926)

(approximately 75% diminution in value), and Hadacheck

v. Sebastian, 239 U.S. 394, 405, 60 L. Ed. 348, 36S. Ct.

143 (1915) (92.5% diminution); see also Lucas v. South

Carolina Coastal Council, 505 U.S. 1003, 1019-20n.8, 120

L. Ed. 2d 798, 112 S. Ct. 2886 (1992) (suggesting that a

95% diminution in value would not constitute a categorical

taking).

The same principle applies here, where the percentage

value remaining to Rith despite the regulatory action was

greater than the percentage value remaining to Mr.

Palazzolo. The diminution in the value of the coal lease

therefore does not, by itself, establish a categorical taking.

In support of its contention that the asserted taking in this

case was categorical, Rith argues that the amount of coal

that it was permitted to mine during the time its permit was

in effect is irrelevant. According to Rith, the nature of the

taking must be measured by the economic value remaining

in the coal leases at the time the permit was revoked.

Because the revocation of the permit prevented Rith from

taking any more coal from the leased property, Rith argues

that the permit revocation deprived it of all of its remaining

property, i.e., 100 percent of the coal that was left in the

ground. We reject that argument. As we explained in our

initial opinion, it is artificial to divide the interests in the

coal lease in the way that Rith proposes and to disregard the

coal that had already been mined under the permit when the

Office of Surface Mining Regulation and Enforcement

("OSM") reversed itself and revoked the permit. Regulatory

action that limits a coal lease owner to removing only 10

percent of the available coal at the outset cannot be

meaningfully distinguished from a course of regulatory

action that initially permits unrestricted mining but then,

after 10 percent of the coal has been removed, prohibits the

owner from taking the remaining 90 percent. The effect of

the regulatory action in this case was to permit Rith to take ~

some coal from the property that was the subject of its

leases and then to prohibit it from taking any more. The

course of regulatory action, viewed as a whole, did not

deprive Rith of all the economic value in its coal leases and

thus did not constitute a categorical taking of Rith's

property.

Rith's principal argument in its petition for rehearing is

that after Palazzolo "the mere fact that an owner bought

after a regulatory scheme was passed cannot defeat a partial

takings claim." Citing Nollan v. California Coastal

Commission, 483 U.S. 825, 97 L. Ed. 2d 677, 107 S. Ct.

314] (1987), Rith argues that it was "entitled to stand in the

shoes of its predecessors who owned before SMCRA [the

Surface Mining Control and Reclamation Act of 1977]."

The implication of Rith's argument seems to be that in

assessing Rith's investment-backed expectations, it was

improper for this court to assign any weight to the

regulatory regime established by SMCRA.

Neither Palazzolo nor Nollan holds that investment-

backed expectations are irrelevant in analyzing a regulatory

taking. The Palazzolo Court rejected the argument that

when governmental action regulates the use of property, a

person who purchases property after the date of the

regulation may never challenge the regulation under the

Takings Clause. 121 S. Ct. at 2462. As the Court explained,

"A blanket rule that purchasers with notice have no

compensation right when a claim becomes ripe is too blunt

an instrument to accord with the duty to compensate for

what is taken." 12] S. Ct. at 2463. In rejecting such a

"blanket rule," however, the Court did not suggest that the

reasonable expectations of persons in a highly regulated

industry are not relevant to determining whether particular

regulatory action constitutes a taking. Justice O'Connor, a

member of the five-Justice majority in Palazzolo, made that

point explicitly in her concurrence, where she wrote:

“Today's holding does not mean that the timing of

the regulation's enactment relative to the acquisition

of title is immaterial to the Penn Central analysis.

Indeed, it would be just as much error to expunge

this consideration from the takings inquiry as it

would be to accord it exclusive significance. . . .

Interference with investment-backed expectations is

one of a number of factors that a court must

examine. Further, the regulatory regime in place at

the time the claimant acquires the property at issue

helps to shape the reasonableness of those

expectations.” /2/ S. Ct. at 2465-66 (O'Connor, J.,

concurring).

As Justice O'Connor's opinion indicates, the role of

investment-backed expectations in regulatory takings cases

is well settled. Indeed, only three years ago in Eastern

Enterprises v. Apfel, 524 U.S. 498, 141 L. Ed. 2d 451, 118

S. Ct. 2131 (1998), the four-Justice plurality reaffirmed the

role of investment-backed expectations in regulatory

takings analysis. Justice O'Connor, writing for herself and

three other Justices who were in the majority in Palazzolo,

reiterated that among the factors that are entitled to

"particular significance" in regulatory takings analysis is

the regulation's "interference with reasonable investment

backed expectations." 524 U.S. at 523; see also id. at 532;

Connolly v. Pension Benefit Guar. Corp., 475 U.S. 211,

224-25, 89 L. Ed. 2d 166, 106 S. Ct. 1018 (1986); Penn

Central Transp. Co. v. New York City, 438 U.S. 104, 124,

57 L. Ed. 2d 631, 98 S. Ct. 2646 (1978). If the Court in

Palazzolo had intended to discard this long-standing

element of regulatory takings analysis it presumably would

have been more explicit about doing so.

Nollan is no more helpful to Rith. The passage from

Nollan on which Rith relies states:

“Nor are the Nollans' rights altered because they

acquired the land well after the Commission had

begun to implement its policy. So long as the

Commission could not have deprived the prior

owners of the easement without compensating

them, the prior owners must be understood to have

transferred their full property rights in conveying

the lot.” 483 U.S. at 833-34 n.2.

In that passage, the Nollan Court explained that the state

was not entitled to an easement across the Nollans' property

simply because the state had announced its policy requiring

property owners to transfer such an easement prior to the

time the Nollans purchased their land. That passage is

couched in terms of a physical taking; the majority was

simply stating that the timing of the state's announcement

of its policy does not alter the fact that the fundamental

nature of the action of obtaining an easement over land is a

physical occupation, as opposed to a "mere restriction on its

use," as suggested in a dissenting opinion. See Nollan, 483

U.S. at 848-49 n.3 (Brennan, J., dissenting). We do not read

the passage quoted by Rith to suggest that, in the context of

a regulatory taking, the fact that a regulatory regime was in

place before the owner purchased the property is irrelevant

to the owner's investment-backed expectations.

In this case, which involves a business engaged in a

highly regulated industry, the plaintiff's reasonable

investment-backed expectations are an especially important

consideration in the takings calculus. A party in Rith's

position necessarily understands that it can expect the

regulatory regime to impose some restraints on its right to

mine coal under a coal lease. The leases themselves notified

Rith of the uncertainty of obtaining permits to mine, and the

low price that Rith paid for the leases may well reflect the

widely understood risk that Rith would not be permitted to

extract as much coal as it hoped from the leased properties.

The likelihood of regulatory restraint is especially high with

regard to possible adverse environmental effects, such as

potentially harmful runoff from the mining operations,

which have long been regarded as proper subjects for the

exercise of the state's police power.

In sum, our conclusion that reasonable investment-backed

expectations play an important role in regulatory takings

cases is not inconsistent with anything in the Supreme

Court's decisions in Nollan and Palazzolo. In its starkest

form, the argument that the Supreme Court rejected in

Nollan and Palazzolo suggests that the government may

take any private property without compensation as long as

it announces far enough in advance its intention to do so.

To reject such a “blanket rule," as the Palazzolo Court

~ termed it, falls far short of suggesting that reasonable

investment-backed expectations no longer have a role to

play in regulatory takings analysis.

Two other factors that the Supreme Court has emphasized

as especially important in the analysis of regulatory takings

are the nature of the governmental action and the

diminution in value caused by that action. See Penn

Central, 438 U.S. at 124. Rith argues that even if the

regulatory action in this case does not constitute a

categorical taking, and the Penn Central analysis applies, it

should prevail. We disagree.

Although the regulatory action in this case caused a

substantial diminution in the value of Rith's coal leases, it

did not deprive Rith of its opportunity to make a profit on

the leases; it simply reduced the margin of profit that Rith

had hoped to achieve. The record reflects that the coal that

Rith was able to mine resulted in a substantial profit for its

investors in light of the price paid for the coal lease. Thus,

the permit revocation in this case, like the regulation at

issue in Keystone Bituminous Coal Ass'n v. DeBenedictis,

480 U.S. 470, 485, 94 L. Ed. 2d 472, 107 S. Ct. 1232

(1987), did not "make[ Jit impossible for [Rith] to

profitably engage in [its] business."

With respect to the nature of the governmental action, the

revocation of the permit, as we suggested earlier, was an

exercise of the police power directed at protecting the

safety, health, and welfare of the communities surrounding

the Rith mine site by preventing harmful runoff. The

exercise of the police power to address that kind of general

public welfare concern is the type of governmental action

that has typically been regarded as not requiring

compensation for the burdens it imposes on private parties

who are affected by the regulations. See Keystone, 480

U.S. at 488-92; Agins v. Tiburon, 447 U.S. 255, 260, 65 L.

Ed. 2d 106, 100 S. Ct. 2138 (1980) (land use regulation

does not effect a taking if it “substantially advance[s]

legitimate state interests"); Penn Central, 438 U.S. at 127

(use restriction on property is not a taking if it is

"reasonably necessary to the effectuation of a substantial

government purpose").

Finally, Rith continues to press its assertions that the

government's decisions in this case were driven by political

pressure, that Rith's mining activities did not present a

significant risk of harmful acid mine drainage, and that Rith

was unfairly singled out for disparate treatment. Those are

claims that Rith either raised or could have raised in the

administrative and judicial challenge to the denial of its

permit. That challenge resulted in a ruling sustaining the

permit denial on the merits, and findings by an

administrative law judge that "the overburden [in Rith's

mine] had a high propensity to produce acid mine

drainage," and that Rith's abatement plan "would not

accomplish the necessary reclamation of the site nor would

it prevent damage to the hydrologic balance." In light of the

10a

conclusion reached by both the administrative law judge

and the Court of Federal Claims that Rith's mining proposal

presented what the Court of Federal Claims judge called a

"high probability of pollution of an aquifer," we have no

basis from which to conclude that Rith was singled out for

rejection because of political pressures brought to bear on

OSM, and that but for those improper considerations, Rith's

permit would not have been revoked.

In any event, in a takings case we assume that the

underlying governmental action was lawful, and we decide

only whether the governmental action in question

constituted a taking for which compensation must be paid.

Rith's complaints about the wrongfulness of the permit

denial are therefore not properly presented in the context of

its takings claim. The only question before us is whether

Rith was entitled to be compensated for the effects of that

action. Under the precedents discussed in our original

opinion, which we do not believe have been undermined by

the Supreme Court's decision in Palazzolo, we conclude

that the revocation of Rith's mining permit did not

constitute a taking for which Rith is entitled to

compensation.

The petition for rehearing is denied.

lla

Appendix B — — Notice of Entry of Judgment and

Opinion of the United States Court of Appeals for the

Federal Circuit Dated and Entered May 2, 2001

UNITED STATES COURT OF APPEALS

FOR THE FEDERAL CIRCUIT

NOTICE OF ENTRY OF

JUDGMENT ACCOMPANIED BY OPINION

OPINION FILED AND JUDGMENT ENTERED: 05/02/01

The attached opinion announcing the judgment of the

court in your case was filed and judgment was entered on the

date indicated above. The mandate will be issued in due

course. [* * *]

JAN HORBALY

Clerk

cc: RAYMOND D. BATTOCCHI

KATHERINE BARTON [* * *]

RITH ENERGY INC. V. US, 99-5153, CFC-92-CV-480

* * * *k *

Appendix B —-- Opinion of the United States Court

of Appeals for the Federal Circuit Dated and Entered

May 2, 2001

RITH ENERGY, INC., Plaintiff-Appellant, v. UNITED

STATES, Defendant-Appellee. 99-5153

UNITED STATES COURT OF APPEALS FOR THE

FEDERAL CIRCUIT

12a

- 247 F.3d 1355; 2001 U.S. App. LEXIS 7986; 52 ERC

(BNA) 1400;31 ELR 20603

May 2, 2001, Decided

SUBSEQUENT HISTORY: Rehearing Denied November 5,

2001, Reported at: 200] U.S. App. LEXIS 25140.

PRIOR HISTORY: Appealed from: United States Court of

Federal Claims. Judge John P. Wiese.

DISPOSITION: AFFIRMED.

COUNSEL: Raymond D. Battocchi, Gabeler, Battocchi &

Griggs LLC, of McLean, Virginia, argued for plaintiff-

appellant. With him on the brief were John R. Powell and

Vicki A. Paisley. Of counsel on the brief was Walter H.

Fleischer, of Washington, DC.

Katherine J. Barton, Attorney, Environmental and Natural

Resources Division, Department of Justice, of Washington,

DC, argued for defendant-appellee. With her on the brief

were Lois J. Schiffer, Assistant Attorney General; John A.

Bryson, Attorney; and Susan V. Cook, Attorney. Of counsel

on the brief was Thomas A. Bovard, Attorney, Office of the

Solicitor, Department of the Interior, of Washington, DC.

Glenn Sugameli, Senior Counsel, National Wildlife

Federation, of Washington, DC, for amicus curiae National

Wildlife Federation.

Nancie G. Marzulla, Defenders of Property Rights, of

Washington, DC, for amicus curiae National Mining

Association.

JUDGES: Before MAYER, Chief Judge, LOURIE, and

BRYSON, Circuit Judges.

OPINION: BRYSON, Circuit Judge.

In 1985, Rith Energy, Inc., purchased two coal mining

leases in Tennessee. It subsequently applied for, and

obtained, a federal permit to conduct mining operations on

the leased property. After Rith had mined for a period of

time, the Office of Surface Mining Reclamation and

13a

Enforcement of the United States Department of the Interior

(OSM) concluded that a portion of the property on which

Rith was mining contained high levels of potentially toxic

materials that could pollute the groundwater in the area

through a process known as "acid mine drainage." OSM

therefore suspended Rith's permit and prohibited it from

mining most of the coal covered by the mining leases until

Rith devised a plan to address the problem of acid mine

drainage at its mining site. When Rith was unable to devise

a plan that satisfied OSM, Rith's request to revise its mining

permit was denied and Rith was unable to conduct any more

mining at the site.

After several unsuccessful administrative and judicial

challenges to OSM's actions, Rith sued the United States in

the Court of Federal Claims, contending that its property had

been taken without compensation, in violation of the

Takings Clause of the Fifth Amendment. The Court of

Federal Claims granted summary judgment for the

government, and Rith appealed. Because the government's

conduct at issue in this case did not result in a categorical

taking of Rith's property, and because Rith did not have

reasonable investment-backed expectations that it would be

permitted to mine in a way that would create a high risk of

acid mine drainage, we affirm.

The Surface Mining Control and Reclamation Act of [977

("SMCRA"), 30 U.S.C. §§ 1201-1328, established a

"nationwide program to protect society and the environment

from the adverse effects of surface coal mining operations.”

30 U.S.C. § 1202(a). Pursuant to SMCRA, coal mine

operators such as Rith must obtain a permit in order to

conduct any mining operations. 30 U.S.C. § 1256. Any

permit issued under SMCRA must comply with certain

environmental performance standards. 30 U.S.C. § 1265.

SMCRA also authorizes the Department of the Interior to

prohibit mining operations that create an imminent danger to

l4a

the health and safety of the public or can reasonably be

expected to cause significant, imminent environmental harm

to land, air, or water resources. 30 U.S.C. § 127].

The environmental performance standards set forth in

SMCRA require, among other things, that the mine operator

“(10) minimize the disturbances to the prevailing

hydrologic balance at the mine-site and in associated

offsite areas and to the quality and quantity of water

in surface and ground water systems both during and

after surface coal mining operations and during

reclamation by--

(A) avoiding acid or other toxic mine drainage by

such measures as, but not limited to--

(i) preventing or removing water from

contact with toxic producing deposits;

(ii) treating drainage to reduce toxic

content which adversely affects downstream

water upon being released to water courses;

(iii) casing, sealing, or otherwise managing

boreholes, shafts, and wells and keeping acid

or other toxic drainage from entering ground

and surface waters[.]”

30 US.C. § 1265(b). Acid mine drainage is an

environmental problem long associated with mining activity.

It occurs when certain types of acidic soil are exposed to air

and water. Once acid mine drainage begins, the chemical

reaction that creates the toxic product becomes self-

sustaining and can continue for years, long after all mining

activity has ceased. See Rith Energy, Inc. v. United States,

44 Fed. Cl. 108, 111 n.3 (1999); see also 30 C.F.R. § 701.5

(defining acid mine drainage).

The coal leases at issue are located in the Cumberland

Plateau region of Tennessee. Prior to April 1984, the State :

of Tennessee had administered SMCRA in that region. In the |

wake of failures by the State to implement, administer,

maintain and enforce the state program adequately, OSM

lSa

took over the administration of SMCRA in Tennessee. OSM

promulgated a federal program for Tennessee in October

1984. See 49 Fed. Reg. 15,496 (Apr. 18, 1984); 49 Fed. Reg.

38,874 (Oct. 1, 1984).

In June 1985, long after SMCRA was enacted and shortly

after the federal takeover of SMCRA enforcement in

Tennessee, Rith acquired the mineral leases at issue in this

case. The two leases covered 250 acres in Bledsoe County,

Tennessee, and cost Rith approximately $33,500. The leases

included warnings regarding the uncertainties of obtaining

mining permits and removing coal. After acquiring the

leases, Rith applied to OSM for a permit to surface mine

coal from two coal seams within the leased property, the

Sewanee and Richland seams. At the time, there was

extensive evidence that acid mine drainage was endemic to

the Sewanee coal seam. That coal seam is situated above the

Sewanee Conglomerate aquifer, a source of drinking water

for area residents.

Rith planned to mine the leased property in three stages,

with the first stage to cover the 89-acre area identified in the

permit application. Rith estimated that a total of 385,000

tons of coal was located within the 250-acre leasehold; of

that amount, Rith stated in its permit application that it

anticipated obtaining 250,000 tons of coal from the 89-acre

area covered by the permit.

As required by SMCRA, Rith submitted a determination

of the probable hydrologic consequences of mining and

reclamation operations in the subject area, supported by soil

test results. The test results showed that the sampled

materials were of low acidity and that the surrounding soils

had buffering capabilities, thereby greatly reducing the risk

of acid mine drainage. Based in part on those test results,

OSM issued Rith a permit to mine in January 1986.

In response to several complaints, OSM visited Rith's mine

site in March 1986 and obtained additional soil samples.

Those samples showed the presence of a thick zone of acidic

l6a

material in the shale overburden of the Sewanee coal seam.

The OSM samples indicated that the potential acidity of the

overburden at Rith's site was some 250 percent greater than

had been represented by Rith, and that the neutralization

capacity of the soil was near zero. OSM directed Rith to

provide further soil samples. Based on those samples, OSM

concluded that the overburden posed a threat to the

hydrological balance outside the permit area. In light of the

"diametrically opposite" test results and what it characterized

as a greatly heightened risk of acid mine drainage, OSM

suspended Rith's permit in June 1986. Rith did not appeal

OSM's decision to suspend its permit.

OSM invited Rith to submit a toxic materials handling

plan that would take into account the heightened risk of acid

mine drainage at the Sewanee coal seam. Rith submitted a

number of plans in an effort to have the suspension lifted,

but none satisfied OSM that Rith had adequately addressed

the concerns OSM had raised. From shortly after the

issuance of the suspension order until May 1987, however,

Rith was permitted to continue mining portions of the

Richland coal seam where the risk of acid mine drainage was

not as great. Rith ultimately extracted approximately 35,700

tons of coal from the Sewanee and Richland coal seams,

which resulted in a profit of approximately $14 per ton.

In September 1988, OSM rejected Rith's final proposed

toxic materials handling plan and denied a permit to resume

mining in the disputed area. Rith then filed an administrative

appeal pursuant to 30 U.S.C. § 1264. In the administrative

appeal, Rith challenged OSM's actions on a number of

grounds, including its contention that acid mine drainage

was unlikely to occur at the mine site and that its toxic

materials handling plan was sufficient to prevent hydrologic

damage outside the permit area if acid mine drainage did

occur.

After a hearing, an administrative law judge from the

Interior Department's Office of Hearings and Appeals

17a

sustained OSM's rejection of Rith's plan. The administrative

law judge concluded that "the overburden on the north side

of [Rith's] permit was undeniably of a highly acidic nature"

and that it "had a high propensity to produce acid mine

drainage." Absent an adequate toxic materials handling plan,

the administrative law judge found, there was "a high

probability that there would be acid mine drainage into the

Sewanee Conglomerate aquifer." Finally, the administrative

law judge concluded that Rith's toxic materials handling plan

“would not accomplish the necessary reclamation of the site,

nor would it prevent damage to the hydrologic balance."

Rith appealed the decision of the administrative law judge to

the Interior Board of Land Appeals (IBLA), which upheld

the administrative law judge's findings and affirmed his

ruling.

Both before and after the conclusion of the administrative

proceedings, Rith instituted several actions in the United

States District Court for the Eastern District of Tennessee

challenging OSM's conduct with respect to Rith's mining

permit, including an action seeking review of the IBLA

ruling. In August 1990, Rith moved to dismiss the action in

which it sought review of the IBLA decision. The district

court granted that motion and dismissed the appeal with

prejudice. After most of the claims in the other proceedings

were dismissed on jurisdictional grounds, the only remaining

claim from the various district court actions was Rith's claim

for damages of $5 million against the United States. The

district court transferred that claim to the United States

Court of Federal Claims in May 1992.

In the Court of Federal Claims, Rith filed an amended

complaint that included a takings claim. On cross-motions

for summary judgment, the court ruled that no taking had

occurred and accordingly entered judgment for the United

States. The court found that "OSM's denial of a mining

permit to plaintiff, because of the high probability of acid

mine draining into the Sewanee Conglomerate aquifer,

18a

represented an exercise of regulatory authority

indistinguishable in purpose and result from that to which

plaintiff was always subject under Tennessee nuisance law."

Rith Energy , 44 Fed. Cl. at 115. The fact that Rith was

granted a surface water discharge permit by the state

regulatory body was not persuasive evidence that Rith's

mining activities were consistent with state law, the court

explained, because

“the information plaintiff submitted to the state

officials no more informed them of the high

probability of harm to the Sewanee aquifer than did

that same data when presented to the federal

officials. We can justifiably assume, however, that

even as the federal officials were persuaded to

reexamine the validity of the permit they initially

had issued, so too would the state officials. A high

probability of pollution of an aquifer is not within

the tolerances of either regulatory scheme--the

Tennessee Water Quality Control Act or SMCRA.”

Id.

In an order denying a motion for reconsideration, the trial

court added that the property use that was denied in this

case--"the conduct of a surface mining operation that held

out a ‘high probability’ of introducing acid mine drainage

into the Sewanee Conglomerate aquifer"--is not a property

use that Rith "could legitimately claim it had a right to

pursue in consonance with relevant state property and

nuisance principles." Rith Energy, Inc. v. United States, 44

Fed. Cl. 366, 367 (1999).

Rith asserts that by preventing it from mining on the

property covered by its coal leases, the government took its

property without compensation, in violation of the Fifth

Amendment. The Court of Federal Claims rejected Rith's

takings claim on the ground that under Tennessee nuisance

law, Rith had no right to mine in a way that was likely to

19a

produce acid mine drainage, and that its property right in the

coal leases therefore did not include the right to mine the

Sewanee seam in the way that it wanted to. The court's

analysis was based on the so-called "nuisance defense" to

takings claims described by the Supreme Court in Lucas v.

South Carolina Coastal Council, 505 U.S. 1003, 120 L. Ed.

2d 798, 112 S. Ct. 2886 (1992), where the Court held that to

avoid constituting a taking, a regulatory restraint that

prohibits all economically beneficial use of land "must

inhere in the title itself, in the restrictions that background

principles of the State's law of property and nuisance already

place upon land ownership." /d. at 1029. The Court in Lucas

explained that when a regulation "that declares off-limits’ all

economically productive or beneficial uses of land goes

beyond what the relevant background principles would

dictate, compensation must be paid to sustain it." Jd. at 1030.

Rith argues that its activities would not have been contrary

to Tennessee nuisance law and that OSM's restraint on Rith's

mining activities, which deprived Rith of all economic value

in the coal leases, therefore constituted a compensable taking

of its property interest in those leases. We need not reach the

question whether Rith's mining activities would have been

prohibited by Tennessee nuisance law, however, because we

conclude that when Rith purchased its coal leases it did not

have any reason to expect that it would be permitted to mine

in a way that was likely to produce acid mine drainage.

Under the current state of takings law, it is often important

to determine at the outset whether a particular claimed

taking was "categorical" or not. A categorical taking has

been defined as one in which "all economically viable use,

i.e., all economic value, has been taken by the regulatory

imposition." Palm Beach Isles Assocs. v. United States, 23]

F.3d 1354, 1357 (Fed. Cir.), modifying 208 F.3d 1374 (Fed.

Cir. 2000). A categorical taking is distinct from a taking

"that is the consequence of a regulatory imposition that

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prohibits or restricts only some of the uses that would

otherwise be available to the property owner, but leaves the

owner with substantial viable economic use." Id. In Palm

Beach Isles, this court held that one significant difference

between a categorical taking and a non-categorical taking is

that in the former case, analyzing whether compensation is

due does not require an inquiry into whether the plaintiff had

reasonable investment-backed expectations that were

defeated by the regulatory measure that gave rise to the

takings claim.

We agree with the government that the regulatory restraint

at issue in this case did not result in a categorical taking.

During the period that Rith was permitted to mine coal under

the permit that OSM issued in January 1986, it extracted

approximately 15,900 tons of coal from the leased property.

Even after OSM suspended Rith's permit in June 1986, OSM

permitted Rith to continue mining coal from one of the two

coal seams on the property, and Rith extracted an additional

19,800 tons of coal from that seam. Although Rith stated in

its permit application that it expected to extract a total of

approximately 250,000 tons of coal from the property

covered by the permit (and later stated that it expected to

extract approximately 385,000 tons of coal from the entire |

250-acre area), Rith acknowledges that the 35,700 tons of

coal that it extracted before it terminated its mining activities

produced a profit of approximately $14 per ton, or a total

profit of approximately $500,000, for Rith's investors.

Because Rith purchased the coal leases for a total of

$33,500, it was able to recover its investment and

considerably more in spite of the permitting restrictions

imposed by OSM.

Rith argues that in determining whether the government

action in this case constituted a categorical taking, the loss

to Rith must be measured as of September 1988, when OSM

refused to accept Rith's last version of its toxic materials

handling plan. After that date, Rith was unable to mine any

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more coal from the leased property, and Rith contends that

as of that time it was deprived of all remaining economic

value in the coal leases.

In measuring the regulatory burden on Rith's mining

activities, it is appropriate to look at the extent to which Rith

was able to exploit its leases throughout the permitting

period. By focusing on its inability to mine any coal under

its permit after September 1988, Rith ignores the fact that it

was allowed to extract a substantial amount of coal under its

mining permit prior to that date. If the permit had provided

at the outset that Rith could mine 35,700 tons of coal on the

89 acres that were covered by its permit, it would not be

accurate to characterize the regulatory restraint as

categorical. The analysis is not different simply because

OSM imposed a condition on the permit during the course of

Rith's mining activities that had the effect of preventing Rith

from extracting any more than the 35,700 tons it had already

mined. If, for example, OSM's restraints had been made

eilective after Rith had removed half the coal from the

icased property, it could hardly be said that the restraint gave

rise to a categorical taking because OSM's prohibition on

further mining took the entire remaining value of the leases

as of that time. See Concrete Pipe & Prods. v. Constr.

Laborers Pension Trust, 508 U.S. 602, 643-44, 124 L. Ed.

2d 539, 113 S. Ct. 2264 (1993) ("a claimant's parcel of

property could not first be divided into what was taken and

what was left for the purpose of demonstrating the taking of

the former to be complete and hence compensable");

Keystone Bituminous Coal Co. v. DeBenedictis, 480 U.S.

470, 498-99, 94 L. Ed. 2d 472, 107 S. Ct. 1232 (1987).

Because Rith applied for a permit to mine all of the coal

within the 89-acre area identified in the application, the

impact of OSM's action must be measured, at minimum, by

the entire coal reserve covered by the permit, not the portion

that remained at the time Rith was forced to stop mining.

The regulatory program began with the issuance of the

22a

permit in January 1986, extended through the period in

which the permit was suspended, starting in June 1986, and

ended when Rith abandoned further efforts to devise a

satisfactory toxic materials handling plan in September

1988. During the first six months of that period, Rith was

able to mine under the authority of the permit, and even

during the period following the permit suspension, Rith was

allowed to continue mining coal from one of the two seams

on the leased property. Viewing the impact of the regulatory

program as a whole, OSM's restraints significantly limited

Rith's rights to mine, but even within those limits Rith was

able to mine a significant amount of coal that earned Rith a

substantial profit on its investment in the leases.

In determining whether a taking is categorical, "the

owner's opportunity to recoup its investment or better,

subject to the regulation, cannot be ignored." Florida Rock

Indus., Inc. v. United States, 791 F.2d 893, 905 (Fed. Cir.

1986); see Forest Props., Inc. v. United States, 177 F.3d

1360, 1367 (Fed. Cir. 1999) (the fact that, despite the

challenged regulatory restraint, the value of the subject

property increased more than three-fold in 11 years "itself

undermines Forest's contention that its property was taken").

While the $500,000 in profit that Rith earned on the

extracted coal was far less than it hoped to earn from the

coal leases, the sum was considerably more than the $33,500

that Rith invested in the leases. Thus, the 35,700 tons,

although only about 14 percent of the amount Rith hoped to

extract under its permit, cannot be regarded as merely a

"nominal" recovery, see Florida Rock Indus., Inc. v. United

States, 18 F.3d 1560, 1567 (Fed. Cir. 1994), reflecting the

"total wipe-out" that accompanies a categorical taking, see

Palm Beach Isles, 208 F.3d at 1380. For that reason, it is not

appropriate to characterize OSM's restraints as "a prohibition

of all economically viable use" of the property in question,

see Florida Rock, 18 F.3d at 1564-65. The restraint in this

case therefore did not result in one of “the relatively rare

23a

situations where the government has deprived a landowner

of all economically beneficial uses." Lucas, 505 U.S. at

1018.

Under this court's decision in Palm Beach Isles, the

consequence of concluding that there was no categorical

taking in this case is that in order to establish that OSM's

regulatory restraints constituted a compensable taking, Rith

must show that it had a reasonable investment-backed

expectation that it would not be subject to such restraints

when it acquired the coal leases. Our precedents make clear

that Rith could not have had such expectations. SMCRA was

enacted eight years before Rith purchased the coal leases. Its

provisions include environmental performance standards that

directly address acid mine drainage and make clear that

surface mining will not be permitted unless the permittee

minimizes the "disturbances to the prevailing hydrologic

balance at the mine-site and in associated offsite areas and

to the quality and quantity of water in surface and ground

water systems . . . by avoiding acid or other toxic mine

drainage .. . ." 30 U.S.C. § 1265 (b)(10). In light of that

statutory provision, Rith could not reasonably have expected

that it would be free from regulatory oversight with regard

to the potential for acid mine drainage, and it could not

reasonably have expected that it would not be required to

adopt potentially expensive measures to avoid acid mine

drainage if OSM determined that its mining activities could

result in the release of those or other toxins. As this court

explained in M & J Coal Co. v. United States, 47 F.3d 1148,

1154 (Fed. Cir. 1995), at the time Rith acquired its mining

rights, "it knew or should have known that it could not mine

in such a way as to endanger public health or safety and that

any state authorization it may have received was subordinate

to the national standards that were established by SMCRA.

and enforced by OSM." See generally Good v. United States,

189 F.3d 1355, 1362 (Fed. Cir. 1999) (holding that the

24a

property owner had no reasonable investment-backed

expectations because he "had both constructive and actual

knowledge that either state or federal regulations could

ultimately prevent him from building on the property");

Creppel v. United States, 41 F.3d 627, 632 (Fed. Cir. 1994)

(stating that one who buys with knowledge of regulatory

restrictions on the use of property "assumes the risk of

economic loss. In such a case, the owner presumably paid a

discounted price for the property. Compensating him for a

‘taking’ would confer a windfall.").

Section 521(a)(2) of SMCRA, 30 U.S.C. § 1271(a)(2),

provides that when the Secretary determines that any

condition exists that creates "an imminent danger to the

health or safety of the public or is causing, or can reasonably

be expected to cause significant, imminent environmental

harm to land, air, or water resources," the Secretary may

order the immediate cessation of surface coal mining

operations relating to that condition. Although OSM did not

explicitly invoke section 521(a)(2) when it suspended Rith's

permit in June 1986, that was the apparent source of its

authority to issue the suspension order. Because Rith did not

appeal the suspension of its permit, it was not necessary for

the administrative law judge to address directly whether the

standard of section 521(a)(2) was satisfied, but the

administrative law judge's findings in the appeal from the

denial of the revision to Rith's permit support the

suspension--particularly his findings that absent an effective

toxic materials handling plan, there was "a high probability

that there would be acid mine drainage into the Sewanee

Conglomerate aquifer" resulting in damage to the hydrologic

balance. In support of his findings, the administrative law

judge cited testimony from an OSM employee that Rith's

mine site "contained one of the highest levels of acid

material that he had ever seen, nationwide, in nine years of

looking at hundreds of permits." The Court of Federal

Claims, moreover, noted that it is well known that acid mine

“> ee eee

25a

drainage can destroy aquatic life and create serious problems

for domestic and public water supplies, and that acid mine

drainage can continue for years, even after mining

operations have been halted. Rith Energy , 44 Fed. Cl. at

/11 n.3. For those reasons, the court agreed with the

administrative law judge that if OSM had failed to act, there

was a high probability that acid mine drainage would have

occurred, severely polluting the Sewanee Conglomerate and

endangering domestic and public water supplies.

Although Rith attacks the lawfulness of OSM's rejection

of its toxic materials handling plan, that challenge is not

properly before us. Like the coal mine operator in M & J

Coal, Rith had the opportunity to challenge the lawfulness of

OSM's actions, including the suspension of its permit, the

rejection of its toxic materials handling plan, and the

ultimate denial of its permit in administrative proceedings

and through judicial review in a United States district court.

In fact, Rith challenged the rejection of its toxic materials

handling plan administratively, and lost. Like the coal mine

operator in M & J Coal, Rith appealed that decision to the

IBLA. After losing before the IBLA, Rith sought judicial

review in federal district court, but dismissed that action. In

a similar setting, we held in M & J Coal that "neither the

Court of Federal Claims nor this court may entertain a

collateral challenge to the validity of OSM's actions," id. at

1154, and we see no reason to depart from that holding here.

Citing Del-Rio Drilling Programs, Inc. v. United States,

146 F.3d 1358 (Fed. Cir. 1998), Rith argues that it should be

given an opportunity to challenge the lawfulness of OSM's

Suspension and permit denial in this action. Del-Rio,

however, does not authorize such a challenge. In Del-Rio,

we held that the plaintiff could bring a takings claim without

first challenging the lawfulness of the government's action,

or establishing the scope of its property interest, in an

administrative proceeding. That is so because a takings

26a

claim lies, as long as the government's action was

authorized, even if the government's action was subject to

legal challenge on some other ground. We explained that an

uncompensated taking and an unlawful government action

constitute "two separate wrongs [that] give rise to two

separate causes of action," and that a property owner is free

either to sue in district court for asserted improprieties

committed in the course of the challenged action or to sue

for an uncompensated taking in the Court of Federal Claims.

Id. at 1364. To proceed on the second cause of action does

not require that the plaintiff first litigate, and lose, on the

first. Nor is the plaintiff required to use the administrative

review proceeding to establish the scope of the property

right that it contends was taken. See id.

To the extent that Rith suggests that Del-Rio entitles it to-

argue in the Court of Federal Claims that OSM's permit

denial was unlawful under SMCRA, or to relitigate in the

takings action its unsuccessful statutory challenge to the

permit denial, it reads too much into Del-Rio. The question

whether OSM violated SMCRA by its ruling on a permit

application in a particular case was assigned by Congress to

the administrative process within the Department of the

Interior, subject to judicial review in a district court. Del-Rio

does not give the Court of Federal Claims authority to

adjudicate that issue de novo. Thus, if the plaintiff claims

that its property was taken regardless of whether the agency

acted consistently with its statutory and regulatory mandate,

Del-Rio stands for the proposition that the takings claim can

be litigated in the Court of Federal Claims without the need

first to litigate the issue of lawfulness in administrative

proceedings before the agency. On the other hand, to the

extent that the plaintiff claims it is entitled to prevail because

the agency acted in violation of statute or regulation, Del-

Rio does not give the plaintiff a right to litigate that issue in

a takings action rather than in the congressionally mandated

administrative review proceeding.

27a

In this case, having forgone its challenge to OSM's

administrative actions, Rith is not free to renew its challenge

to those actions under the cover of a takings claim in the

Court of Federal Claims. Rith is thus required to litigate its

takings claim on the assumption that the administrative

action was both authorized and lawful. On the facts of this

case, the consequence of assuming the lawfulness of OSM's

actions, i.e., that OSM was correct in concluding that Rith's

mining activities constituted an unacceptable threat of acid

mine drainage and the consequent pollution of groundwater

in the area surrounding the mine operations, is to limit the

issue before us to whether prohibiting Rith from mining

under those circumstances constitutes a taking. And on that

issue, as we have explained, the absence of a reasonable

investment-backed expectation on Rith's part that it would

be permitted to mine while producing acid mine discharge in

violation of SMCRA defeats its takings claim. We therefore

uphold the judgment of the Court of Federal Claims.

AFFIRMED.

—

28a

Appendix C —— Opinion and Order of the United States

Court of Federal Claims Dated and Filed July14, 1999

RITH ENERGY, _INC., Plaintiff, v. THE UNITED

STATES, Defendant, No. 92-480 L

UNITED STATES COURT OF FEDERAL CLAIMS

44 Fed. Cl. 370; 1999 U.S. Claims LEXIS 192

July 14, 1999, Filed

OPINIONBY: John P. Wiese

OPINION: ORDER DENYING MOTION FOR

RECONSIDERATION

The restrictions imposed by Tennessee's Water Quality

Control Act with regard to use of the State's water resources

do not represent a set of newly- proclaimed tenets of public

nuisance law. To the contrary, activities that cause the

pollution of domestic waters have long been recognized by

the courts of Tennessee.to be contrary to the public's health

and safety and therefore enjoinable as a nuisance. Nunnelly

v. Southern Iron Co., 94 Tenn. 397, 29 S.W. 361 (Tenn.

1895); H.B. Bowling Coal Co. v. Ruffner, 117 Tenn. 180,

100 S.W. 116 (Tenn. 1907); Love v. Nashville Agricultural

and Normal Institute, 146 Tenn. 550, 243 S.W. 304 (Tenn.

1922).

And whether the enforcement of these restrictions is

accomplished by the state regulatory body or by federal

officials acting under the authority of SMCRA is not an

issue relevant to the takings analysis. Under the holding of

Lucas v. South Carolina Coastal Council, 505 U.S. 1003,

1029, 120 L. Ed. 2d 798, 112 S. Ct. 2886 (1992), the test is

whether the property use that is proscribed is based on

"restrictions that background principles of the State's law of

29a

property and nuisance already place upon land ownership."

Where that condition is met, no compensation is owed.

The property use that was denied here, the conduct of a

surface mining operation that held out a "high probability”

of introducing acid mine drainage into the Sewanee

Conglomerate aquifer, is not a property use plaintiff could

legitimately claim it had a right to pursue in consonance

with relevant state property and nuisance principles.

The motion for reconsideration is denied.

John P. Wiese, Judge

30a

Appendix D —— Opinion of the United States Court

of Federal Claims Dated and Filed June 25, 1999

RITH ENERGY, INC., Plaintiff, v. THE UNITED

STATES,Defendant.

No. 92-480 L

UNITED STATES COURT OF FEDERAL CLAIMS

44 Fed. Cl. 108; 1999 U.S. Claims LEXIS 146; 48 ERC

(BNA)1951; 146 Oil & Gas Rep. 193; 29 ELR 21389

June 25, 1999, Filed

COUNSEL: Raymond D. Battocchi, McLean, Virginia, for

plaintiff. John R. Powell and Vicki Ann Paisley, of counsel.

Susan V. Cook, with whom were Assistant Attorney

General Lois J. Schiffer, Deputy Chief James E.

Brookshire, Environment & Natural Resources Division,

Department of Justice, Washington, D.C., for defendant.

Tom Bovard, Department of Interior, of counsel.

OPINION:

WIESE, Judge.

The question presented in this case is whether the

Government's rejection of plaintiff's proposed mining plan,

combined with the prohibition on all mining operations that

that rejection occasioned, effected a taking of plaintiff's

property for which just compensation is now owing under

‘the Fifth Amendment of the United States Constitution. The

issue is before us on cross-motions for summary judgment.

Based on the parties' written and oral presentations, we

conclude that no compensable taking has occurred and

accordingly direct the entry of judgment in the

Government's favor.

3la

BACKGROUND

The Surface Mining Control and Reclamation Act of 1977,

Title 30 of the United States Code, section 1201(c)(1994),

sets forth Congress’ finding that:

“(c) many surface mining operations result in

disturbances of surface areas that burden and

adversely affect commerce and the public welfare

by destroying or diminishing the utility of land for

commercial, industrial, residential, recreational,

agricultural, and forestry purposes, by causing

erosion and landslides, by contributing to floods, by

polluting the water, by destroying fish and wildlife

habitats, by impairing natural beauty, by damaging

the property of citizens, by creating hazards

dangerous to life and property by degrading the

quality of life in local communities, and by

counteracting governmental programs and efforts to

conserve soil, water, and other natural resources . .

”

In recognition of these many concerns, Congress enacted

the Surface Mining Control and Reclamation Act of 1977

("SMCRA") with the express objective, among others, of

establishing "a nationwide program to protect society and

the environment from the adverse effects of surface coal

mining operations." 30 U.S.C. § 1202(a). Towards this end,

SMCRA charges the Office of Surface Mining Reclamation

and Enforcement ("OSM") with the task of regulating the

surface coal mining industry by prohibiting mining

operations that endanger public health and safety or harm

the environment.

SMCRA provides in relevant part as follows:

32a

_ “When, on the basis of any Federal inspection, the

Secretary [of Interior] or his authorized

representative determines that any condition or

practices exist, or that any permittee is in violation

of any requirement of this [Act] or any permit

condition required by this [Act], which condition,

practice, or violation also creates an imminent

danger to the health or safety of the public, or is

causing, or can reasonably be expected to cause

significant, imminent environmental harm to land,

air, or water resources, the Secretary or his

authorized representative shall immediately order a

cessation of surface coal mining and reclamation

operations or the portion thereof relevant to the

condition, practice, or violation. . . . Where the

Secretary finds that the ordered cessation of surface

coal mining and reclamation operations, or any

portion thereof, will not completely abate the

imminent danger to health or safety of the public or

the significant imminent environmental harm to

land, air, or water resources, the Secretary shall, in

addition to the cessation order, impose affirmative

obligations on the operator requiring him to take

whatever steps the Secretary deems necessary to

abate the imminent danger or the significant

environmental harm.”

30 U.S.C. § 1271(2) (1994).

The Regulatory Process

On June 29, 1985, almost eight years after the passage of

SMCRA, plaintiff, Rith Energy, purchased two leases to

surface-mine coal on about 250.acres of land situated along

the Sewanee and Richland coal seams in Tennessee. At the

time it acquired these leases, plaintiff was aware that its

33a

mining operations would invade the rock strata overlying

the aquifer that supplies the local community with its

drinking water - those geologic formations known as the

Sewanee Conglomerate, the Newton Sandstone, and the

Whitewell Shale.

In August 1985, plaintiff, pursuant to SMCRA, applied

for a surface-mining permit.' SMCRA required plaintiff to

obtain soil samples to determine the level of toxicity in the

soil to be mined, and to prepare a Toxic Materials Handling

Plan ("handling plan") explaining how it would treat any

overburden’ that exhibited a potential to cause acid mine

drainage (“AMD").’ With the assistance of a mining

' In addition to its mining permit, plaintiff was also required

to apply for, and obtain, a permit under the Federal Water

Pollution Control Act, 33 U.S.C. §§ 1311-1387 (1994 & Supp.

III 1997). That act requires the issuance of a National Pollutant

Discharge Elimination System ("NPDES") permit by the

cognizant state regulatory body -- in this case the Tennessee

Division of Water Quality Control -- prior to the discharge of any

effluent into a state's waters. NPDES permits require compliance

with all applicable federal and state water quality standards. An

NPDES permit was issued to plaintiff on January 17, 1986.

? Overburden refers to the soils lying above the coal deposits.

> AMD is defined by federal regulations as "water with a pH

of less than 6.0 and in which total acidity exceeds total alkalinity,

discharged from an active, inactive or abandoned surface coal

mine and reclamation operation or from an area affected by

surface coal mining and reclamation operations." 30 C.F.R. §

701.5 (1998). AMD occurs when certain types of acidic soil are

exposed to air and water. Once AMD begins, the chemical

reaction that creates the toxic product becomes self-sustaining

and can continue for years, even after all mining activity has

ceased.

34a

consultancy firm, plaintiff obtained and submitted three soil

samples, two showing a pH level of approximately 5.2 and

one showing a pH level of 3.4, thus indicating a relatively

low potential for AMD. Along with these samples, plaintiff

also submitted a handling plan which explained that any

overburden exhibiting the potential to produce AMD would

be mixed and regraded with a much larger volume of non-

toxic material in order effectively to buffer the potential for

AMD. The plan further indicated that all surface drainage

from the disturbed areas of the mine-site would be passed

through a sediment pond for treatment before discharge

from the property.

AMD can adversely affect the quality of surface water by, inter

alia, lowering its pH level, reducing its natural alkalinity,

increasing its total hardness, and adding undesirable amounts of

iron, manganese, aluminum, sulfates, and other elements and

suspended materials. AMD also adversely affects groundwater by

introducing contaminants and by changing pH levels, thereby

threatening local residential drinking-water supplies.

The lower pH levels associated with AMD also have been

demonstrated to have a lethal and pathological effect on fish and

aquatic life. As AMD lowers the water's pH level, the water

becomes more toxic, thereby interfering with the metabolic

processes by which bacteria, aquatic insects, and fish utilize

oxygen for respiration. The neutralization of the acidity via

dilution can cause manganese sludge to precipitate out, which

then physically degrades benthic habitat, smothers fish eggs, and

physically damages gill tissue. These processes affect both the

organisms themselves and other aquatic life, such as fish, which

rely on these organisms as a source of food.

Aquatic life is also destroyed by the toxicity of the chemicals

in AMD, and by the iron precipitates and other suspended

materials which cloud the water and coat the sides and the

bottoms of water bodies, thereby destroying a stream's aesthetic

qualities and preventing the growth of aquatic life.

35a

Based on these several representations, on January 3,

1986, OSM issued a "Finding of No Significant Impact,"

meaning that plaintiff's mining operations were expected to

"produce little or no adverse change in the prevailing

hydrologic balance . . . ." OSM then issued plaintiff a five-

year permit to mine the Sewanee and Richland coal seams,

with plaintiffs mining operations beginning immediately

thereafter.

On March 25, 1986, OSM, acting in response to

complaints both from local area residents and a regional

environmental protection group, decided to re-sample the

overburden in plaintiff's permit area. The test results

obtained from these new soil samples revealed an

overburden that was approximately 250% more acidic than

indicated by the pH levels recorded in the test data that had

accompanied plaintiff's permit application. Further, the

potential neutralization factor of the soil, i.e., the soil's

Capacity to offset the acidic overburden, was found to be

nearly zero, thus indicating a roughly 500% variance from

the earlier-reported data. On the basis of these changed

findings, OSM concluded that the potential for AMD posed

a significantly greater danger to the environment and to the

public health and safety than first thought. Accordingly, on

June 27, 1986, OSM suspended plaintiff's permit to mine

the Sewanee seam pending submission of a new handling

plan -- a plan sufficient to address the increased AMD

hazards evident in the soil chemistry as well as satisfy the

requirements for an acceptable reclamation of the mine-site.

In July 1986, while the re-permitting process was

underway, plaintiff received approval to mine a portion of

the Richland seam -- an area where mining could occur

without disturbing the overburden above the Sewanee seam.

Rith continued to mine this section of its property until May

noassseateneieeyineesaptaniseieretieranre ania ee

ASEH Shee. aha: 3 ae ie RS mama ay erence eee cee eee

36a

1987, when OSM firally ordered plaintiff to cease all

mining operations.*

Between June 1986 and September 1988, plaintiff

submitted a series of handling plans to OSM. Each resulted

in the issuance of a Technical Deficiency Letter indicating

OSM's rejection of the plan for lack of technical adequacy.

Eventually, plaintiff was advised by OSM that, due to the

high acidity of the Sewanee overburden, an acceptable

handling plan would have to incorporate the use of

impermeable pods.’ On September 6, 1988, OSM denied

plaintiff's Significant Revision No. 10 -- plaintiff's final

attempt to obtain a permit revision. This final rejection was

based on the fact that, in reviewing plaintiffs submission,

OSM was unable to make a finding that the application was

complete and accurate, or that reclamation could be

accomplished as required by SMCR

The Administrative Appeals

Upon receiving notice of the rejection of its final revision,

plaintiff filed an appeal with the Department of Interior's

Office of Hearing and Appeals. A six-day hearing on the

denial of Significant Revision No. 10 was conducted in

January 1989. On March 28, 1989, the Office of Hearings

and Appeals issued a decision sustaining OSM's denial of

* From January 1986 to the end of plaintiff's mining operation,

plaintiff extracted a total of 35,665.11 tons of coal or, roughly,

9.3% of the approximately 385,000 tons of minable coal existing

within the boundaries of the two leases.

Impermeable pods completely isolate toxic and acid-

producing materials, thereby preventing contact with water and

air, and thus insuring that AMD in fact is never produced.

37a

Revision No. 10. In his opinion, Administrative Judge

Torbett noted the following:

“The undersigned finds that the overburden on the

north side of Applicant's permit was undeniably of

a highly acidic nature. Unless Applicant could

demonstrate that the pod concept would work, there

would have been a high probability that there would

be acid mine drainage into the Sewanee

Conglomerate aquifer. Given the importance of

particle size to the issue of permeability of the pods,

the undersigned finds that Respondent's concerns

for damage to the hydrology from Applicant's

proposed toxic material handling plan were

legitimate.

Rith Energy, Inc., No. NX 89-1-PR at 26 (March 1989).

The opinion concluded by saying:

“The evidence proves that that overburden had a

high propensity to produce acid mine drainage. The

clear weight of the evidence also shows that

Applicant's plan would not accomplish the

necessary reclamation of the site, nor would it

prevent damage to the hydrologic balance. The

undersigned therefore holds that the Respondent

properly denied Significant Revision No. 10 and its

subsequent revisions.

Id. at 27.

On October 24, 1989, the Interior Board of Land appeals

affirmed Judge Torbett's decision stating in part: "Based on

our review of the record we find that the evidence supports

Judge Torbett's decision that OSMRE properly denied

Rith's application for permit revision." Rith Energy, Inc.,

111 IBLA 239, 244 (1989).

38a

Judicial Proceedings

Plaintiff's dissatisfaction with the administrative process

led to its filing of three suits against the United States in the

United States District Court for the Eastern District of

Tennessee. The first, filed August 31, 1988, alleged that the

June 27, 1986 permit suspension was an arbitrary and

capricious action that violated Rith's rights to procedural

and substantive due process and to equal protection of the

law. Additionally, it was claimed that the action constituted

a taking of Rith's property. The second action, filed January

25, 1989, sought judicial review of OSM's September 6,

1988 decision (the decision rejecting Significant Revision

No. 10), as well as damages of $5 million. The third action,

filed November 22, 1989, sought judicial review of the two

administrative decisions -- the March 28, 1989 decision of

the Office of Hearing and Appeals and the October 24,

1989 decision of the Interior Board of Land Appeals. The

three suits were subsequently consolidated by the district

court.

On August 6, 1990, Rith moved for and obtained the

dismissal of its last-filed action. As to the remaining

actions, these the district court dismissed on the ground that

Rith had not exhausted its administrative remedies.

On appeal, the United States Court of Appeals for the

Sixth Circuit vacated the dismissal and remanded to the

district court with instructions to determine whether it

would be in the interests of justice to transfer the case to the

Claims Court (now the Court of Federal Claims) pursuant

to 28 U.S.C. § 163] (1994). On May 12, 1992, the case was

transferred to this court.

Following the transfer, on August 17, 1992, plaintiff filed

an amended complaint alleging a taking of its property as

well as various other claims for relief that essentially

ee ee

39a

repeated what had been alleged in the suits before the

district court. Without objection from plaintiff, all claims

except the taking claim have been dismissed.

DISCUSSION

The Fifth Amendment to the United States Constitution

concludes with the clause: "nor shall private property be

taken for public use, without just compensation." The

purpose of the clause -- as the much-quoted language from

Armstrong v. United States, 364 U.S. 40, 49, 4 L. Ed. 2d

1554, 80 S. Ct. 1563 (1960) explains -- is "to bar

Government from forcing some people alone to bear public

burdens which, in all fairness and justice, should be borne

by the public as a whole." Thus, in every case alleging a

taking, the essential inquiry is whether the Government has

caused a loss of private property for which considerations

of fairness dictate the payment of appropriate

compensation.

Traditionally, this fairness inquiry has been conducted

through a three-factor analysis. Courts have examined the

character of the governmental action that gave rise to the

claimed loss, the extent to which that action interfered with

an owner's reasonable investment-backed expectations, and

the extent of the economic harm occasioned by the

Government's action. Penn Central Transp. Co. v. New

York City, 438 U.S. 104, 124, 57 L. Ed. 2d 631, 98 S. Ct.

2646 (1978). When "regulation goes too far it will be

recognized as a taking." Pennsylvania Coal Co. v. Mahon,

260 U.S. 393, 415, 67 L. Ed. 322, 43 S. Ct. 158 (1922).

Not every taking case, however, requires application of

this three-factor analysis in order to determine whether the

alleged preperty loss at issue demands the payment of just

compension. Some cases are governed by an absolute

rule. Thus, for example, where the Government has

40a

physically invaded an owner's property, a taking will be

recognized no matter how minimal the intrusion nor how

weighty the public interests asserted in its support. Loretto

v. Teleprompter Manhattan CATV Corp., 458 U.S. 419,

426, 73 L. Ed. 2d 868, 102 S. Ct. 3164 (1982). The

recognition of a per se taking in this circumstance is

grounded in the fact that the physical dispossession of a

property owner necessarily deprives that owner of all

incidents of ownership in the property so affected.

Conversely, regulatory action that restrains an owner

from the beneficial use of his property -- even a restraint

barring all such use -- cannot become the basis of a

compensable taking where the restraint that is imposed is

grounded "in the restrictions that background principles of

the State's law of property and nuisance already place upon

land ownership." Lucas v. South Carolina Coastal Council,

505 U.S. 1003, 1029, 120 L. Ed. 2d 798, 112 S. Ct. 2886

(1992). Such restrictions are seen as inhering in the title

itself. As explained in Loveladies Harbor, Inc. v. United

States, 28 F.3d 1171, 1179 (Fed. Cir. 1994), "property

rights as a matter of law since Blackstone's day have been

understood to be subject to the power of the state to abate

nuisances. If the imposed restraint would have been

justified under the state's traditional nuisance law, then the

property owner's bundle of rights did not inciude the right

claimed, and no taking could occur.”

Restrictions on the use of property that have their source

in federal law also come within this rule to the extent such

restrictions do no more man mirror the results that could be

reached under the state's nuisance law. Loveladies Harbor,

28 F.3d at 1182: "Since the federal power to regulate

without risk of a taking is based on the state's nuisance law

... the federal authority, if exercised, is exercised at the

risk of an absence of state authority."

4la

Based on the foregoing, the question we start with is

whether the denial of a mining permit by federal officials,

acting under the authority of SMCRA, parallels a result that

could have been achieved under the state's nuisance law. To

put it most simply, would Tennessee nuisance law sanction

the issuance of an injunction restraining Rith from

proceeding with a surface mining operation given an

adjudicated finding that, because of an inadequate handling

plan, "there would [be] a high probability [of] acid mine

drainage into the Sewanee Conglomerate aquifer"? Rith

Energy , No. NX 89-1 PR at 26.

The answer is yes. Our conclusion is based on

Tennessee's Water Quality Control Act of 1977 (the Act),

Tenn. Code Ann. §§ 69-3-102 - 69-3-131 (1995 & Supp.

1998) -- an act that recognizes the waters of the state,

including its groundwaters, as property of the state, held in

public trust, and subject to a right of "the people of

Tennessee, as beneficiaries of this trust . . . to unpolluted

waters." Tenn. Code. Ann. § 69-3-102(a).

Consistent with the state's trust obligation to its citizens,

the Act goes on to declare that its purpose is "to abate

existing pollution of the waters of Tennessee, to reclaim

polluted waters, to prevent the future pollution of the

waters, and to plan for the future use of the waters so that

the water resources of Tennessee might be used and

enjoyed to the fullest extent consistent with the

maintenance of unpolluted waters." Tenn. Code Ann. § 69-

3-102(b).

To accomplish these purposes, the Act authorizes the

promulgation of standards of quality for all waters of the

state, Tenn. Code Ann. § 69-3-105, and the enforcement of

these standards through a permit process that applies to a

broad range of specified activities including:

42a

“The development of a natural resource or the

construction, installation, or operation of any

establishment or any extension or modification

thereof or addition thereto, the operation of which

will or is likely to cause an increase in the discharge

of wastes into the waters of the state or would

otherwise alter the physical, chemical, radiological,

biological or bacteriological properties of any

waters of the state in any manner not already

lawfully authorized. . . .”

Tenn. Code Ann. § 69-3-108(b)(4).

Additionally, the Act directs that "under no circumstances

shall the commissioner [of environment and conservation --

the state's permit-granting official] issue a permit for an

activity which would cause a condition of pollution® either

® Pollution" is defined in the Act as "such alteration of the

physical, chemical, biological, bacteriological, or radiological

properties of the waters of this state including, but not limited to,

changes in temperature, taste, color, turbidity, or odor of the

waters that will:

(A) Result or will likely result in harm, potential harm or

detriment of the public health, safety, or welfare;

(B) Result or will likely result in harm, potential harm or

detriment to the health of animals, birds, fish, or aquatic life;

useful for domestic, municipal, industrial, agricultural,

recreational, or other reasonable uses; or

(D) Leave or likely leave the waters in such condition as to

violate any standards of water quality established by the board."

Tenn. Code Ann. § 69-3-103(22).

43a

by itself or in combination with others." Tenn. Code Ann.

§ 69-3-108(e).’

To reinforce the administrative controls exercised through

the permitting process, the commissioner is authorized to

"bring suit in the name of the department for any violation

of the provisions of this part, seeking any remedy therein

provided and any other statutory or common law remedy

available for the control, prevention, and abatement of

pollution.” Tenn. Code Ann. § 69-3-107(3). That this

authority includes the right to seek injunctive relief is

specifically spelled out in Section 69-3-117: "The

commissioner may initiate proceedings . . . against any

person who is alleged to have violated or is about to violate

this part [i.e., "Part | - Water Quality Control Act"),

conditions of permits issued under this part, the rules and

regulations of the board [i.e., the Water Quality Control

board] or orders of the board or commissioner. In such

action the commissioner may seek, and the court may grant,

injunctive relief and any other relief available in law or

equity.”

To round out the commissioner's enforcement authority,

the Act declares it to be "unlawful for any person to

discharge any substance into the waters of the state or to

place or cause any substance to be placed in any location

where such substances, either by themselves or in

7 Although the Act prohibits the issuance of a permit for an

activity that would cause or contribute to a condition of pollution,

the commissioner may allow a water quality standard to be

exceeded for a limited period of time provided "the waters to

which the variance applies are not used as a current source of

drinking water and such use is not reasonably anticipated for the

term of the variance and a reasonable time thereafter." Tenn.

Code Ann. § 69-3-108(k)(1).

44a

combination with others, cause any of the damages as

defined in Section 69-3-103(22) [i.e., pollution damages],

unless such discharge shall be due to an unavoidable

accident or unless such action has been properly authorized.

Any such action is declared to be a public nuisance." Tenn.

Code Ann. § 69-3-114(a).

Given the above-described elements of Tennessee's water

quality control statute, we think it is virtually self-evident

that OSM's denial of a mining permit to plaintiff, because

of the high probability of acid mine drainage into the

Sewanee Conglomerate aquifer, represented an exercise of

regulatory authority indistinguishable in purpose and result

from that to which plaintiff was always subject under

Tennessee nuisance law.

In an effort to overcome this conclusion, plaintiff points

out that, in fact, it was granted a permit by the state

regulatory body and therefore, it is argued, OSM's denial of

a permit stands at odds rather than in harmony with the

state's result. The contention is hardly persuasive. The

information plaintiff submitted to the state officials no more

informed them of the high probability of harm to the

Sewanee aquifer than did that same data when presented to

the federal officials. We can justifiably assume, however,

that even as the federal Officials were persuaded to

reexamine the validity of the permit they initially had

issued, so too would the state officials. A high probability

of pollution of an aquifer is not within the tolerances of

either regulatory scheme -- the Tennessee Water Quality

Control Act or SMCRA.®

8 Mining activity physically alters groundwater quality by

accelerating the addition, through otherwise normal surface

(continued...)

45a

CONCLUSION

Under Tennessee's Water Quality Control Act, a permit

may not be issued for the conduct of a mining operation

that would cause a condition of pollution affecting the

state's waters. Plaintiff's surface mining operation has been

determined to hold out a high probability of introducing

acid drainage into the Sewanee Conglomerate aquifer.

Accordingly, that operation would not qualify for the

issuance of a permit; its conduct, therefore, would

constitute an enjoinable nuisance under state law.

Pursuant to the authority of Lucas v. South Carolina

Coastal Council, 505 U.S. 1003, 120 L. Ed. 2d 798, 112 S.

Ct. 2886 (1992), and for the reasons set forth in this

opinion, we conclude that no compensable taking has

occurred. Defendant's motion for summary judgment is

granted and plaintiff's cross-motion for partial summary

judgment is denied. The Clerk is directed to dismiss the

complaint. a

(...continued)

-drainage, of suspended solids such as silt and sediment which

readily erode from the mineral particles that become exposed

upon the break-up of the soil, rock strata and coal deposits.

Appalachian Reg'l Comm'n, Acid Mine Drainage in Appalachia,

H.R. Doc. No. 91-180, vol. 1 at 15 (1st Sess. 1969). Thus where

mining activities result in the disruption of substrata containing

high concentrations of acidity (i.e., iron sulfide minerals), the

resulting alteration of the ground water satisfies the Act's

definition of pollution: "such alteration of the physical .. .

properties of the waters ... that . . . will likely result in harm,

potential harm, or detriment of the public health, safety, or

welfare." Tenn. Code Ann. § 69-3-103(22)(A).

46a

Appendix E — — Opinion of the Interior Board of Land

Appeals, dated October 24, 1989

RITH ENERGY, INC. v. OFFICE OF SURFACE MINING

RECLAMATION AND ENFORCEMENT

IBLA 89-393

Interior Board of Land Appeals

111 IBLA 239; 1989 IBLA LEXIS 279

October 24, 1989, Decided

APPEARANCES:

Michael W. Boehm, Esq., Chattanooga, Tennessee, for

petitioner;

Tom FitzGerald, Esq., Frankfort, Kentucky, for Save Our

Cumberland Mountains, Inc., Intervenor; and Nicklas Holt,

Esq., Knoxville, Tennessee, for the Office of Surface

Mining Reclamation and Enforcement.

OPINIONBY: FRAZIER

OPINION BY ADMINISTRATIVE JUDGE FRAZIER

By order of June 1, 1989, this Board granted a petition for

discretionary review filed by Rith Energy, Inc. (Rith).

Petiiioner sought review of a decision by Administrative

Law Judge David Torbett, dated March 28, 1989, sustaining

a denial by the Knoxville Field Office (KFO), Office of

Surface Mining Reclamation and Enforcement (OSMRE),

of Rith's application for Significant Revision No. 10.

By its application, petitioner sought to revise permit 2583,

which was issued to Rith on January 3, 1986, for an 89-acre

surface coal mining operation in Bledsoe County,

Tennessee. Shortly after issuance of the permit, OSMRE

47a

suspended Rith's operations on a portion of this permit until

Rith had submitted and OSMRE had approved an adequate

toxic materials handling plan(TMHP). Rith submitted such

a plan as Significant Revision No. 10 on January 15, 1988,

and subsequently amended it following a series of technical

reviews by OSMRE.

KFO denied Rith's application for Significant Revision

No. 10 because it found that the application did not Satisfy

30 CFR 942.774.13(c).' This regulation requires that an

application for permit revision demonstrate, inter alia, that

applicable requirements under 30 CFR 942.773.15(c)

“which are pertinent to the revision" are met. Regulation

30 CFR 942.773.15(c) requires that an application

affirmatively demonstrate, and the regulatory authority

find, inter alia, that the application is complete and accurate

and that reclamation, as required by the Act and the

regulatory program, can be accomplished under the

reclamation plan contained in the permit application.’ In its

decision, dated September 6, 1988, KFO expressly stated

that it could make no such findings.

Immediately prior to issuing this decision of September

6, 1988, KFO had received from Tare, Inc., petitioner's

consulting engineer, the last of three responses prepared by

Tare, each addressing a deficiency letter issued by KFO. It

was the consensus of the KFO technical review team that

Rith remained unresponsive to the earlier deficiencies and

' KFO's decision of Sept. 6, 1988, referred to regulations

under the Tennessee Federal program. See 30 CFR Part 942.

> The Act referred to is the Surface Mining Control and

Reclamation Act of 1977 (SMCRA), 30 U.S.C. § 1201 (1982).

Requirements similar to 30 CFR 773.15(c) are set forth at 30

U.S.C. § 1260 (1982).

48a

that its TMHP remained a general plan. Joe B. Maddox,

Chief, Division of Tennessee Permitting, KFO, testified,

"We didn't have the level of detail that we would need in

order to make that finding [under 30 CFR 942.774.13(c)

and 30 CFR 942.773.15(c)]" (Tr. 566).

The deficiencies that KFO found to be unaddressed in

Rith's TMHP are set forth in KFO's final deficiency letter

of July 25, 1988 (Exh. R-15). The deficiencies focus upon

a plan to isolate potentially acidic shales in pods that would

be compacted to minimize infiltration (Exh. R-3 at 4).

KFO's letter relied heavily upon a feport by the Eastern

Field Operations (EFO) office, OSMRE, and noted the

following deficiencies,’ inter alia:

> Concern was also voiced by the Environmental Protection

Agency (EPA), who commented upon the TMHP by letter of

Aug. 9, 1988 (Exh. R-18). EPA explained that its interest was

the protection of surface water and groundwater from

contamination by acid-mine drainage. The pod plan addressed by

EPA below was initially devised by EFO:

"Conceptually we feel that the proposed isolation of toxic

spoils in relatively impermeable pods on the mine site is feasible.

However, problems associated with the use of on-site shale for

pod liner material and site-specific hydrologic conditions will

seriously limit the effectiveness of the proposed plan in

preventing the formation of acid leachate that could degrade

ground and/or surface waters.

"Our main concern at present is the assertion that the proposed

waste handling plan will prevent saturation of the encapsulated

toxic materials. Our evaluation of the hydrologic modeling

presented in the assessment indicates that the hydraulic capacity

of the sandstone underdrain and the shale backfill material

around the pods will not be adequate to convey surface and

groundwater infiltration and ensure that saturated conditions will

(continued...)

yp ec

eS OLR REND ; ai *, aia cee a

49a

“Provide a detailed description of the operations

plan showing how the conceptual model can be

successfully implemented during mining and

reclamation. The operations plan should include a

description of the Whitwell shale blasting and

excavation techniques assuring the minimum

particle size is attained; contingencies made for the

material segregation and temporary storage

provisions; and material balances showing

estimated swell and recompaction volumes of toxic

material, non-toxic Whitwell shale, and Newton

sandstone on an individual cut basis. * * *.

Provide, on an individual cut basis, a detailed

description of pod construction techniques, and

describe how positive drainage from the pod surface

(...continued)

not occur. We believe it is likely that execution of the plan as

proposed will result in saturation of the pods at least some of the

time with the possibility that they will remain in a saturated

condition. Under such conditions, toxic leachates will be

generated since the liner material will not be totally impermeable.

"After evaluating the pod construction design, we do not

believe that the permeability test results support the use of shale

liners as a practical means of controlling leachate from toxic

materials. Although the tests indicated that acceptably low

permeabilities can be achieved with compacted, minus 1/4-inch

shale particles, the tightly controlled laboratory conditions are

unlikely to be duplicated in the field, especially with shale

fragments as large as 6 inches. The proposed on-site test pad

demonstration should provide better information on which to

draw conclusions but only if test methods are altered to reflect

actual pod construction conditions as noted in our technical

comments.”

_ 50a

will be ensured. Engineering drawings should be

prepared * * * to depict plan views of each pod, and

should provide individual pod dimensions and areal

positioning relative to the mine site.

seek ee &

A demonstration must be provided to show the

capability to perform the exacting compaction and

selective materials handling practice that would

result in the required permeabilities. * * *

*e eek E &

Field observations of the current mine status

indicate that a correction of the Sewanee coal seam

cropline on your mining operations map is needed.

* * * This incorrect cropline significantly affects

the volumes of potentially acid forming shale * * *.

Provide a narrative with appropriate cross-

references that discusses how the Newton

Sandstone will be removed and stored; how the

potentially acid-forming materials‘ will be removed

and stored; how the Richland overburden will be

removed and stored and then replaced to obtain a

positive drain; how the Newton Sandstone will then

be replaced as an underdrain; how and what -

material will be used for construction of the pads

* “Acid-forming materials" are earth materials that contain

sulfide mineral or other materials which, if exposed to air, water,

or weathering processes, will cause acids that may create acid

drainage. "Acid drainage" is water with a pH of less than 6.0

discharged from active or abandoned mines and from areas

affected by coal mining operations. 30 CFR 710.5.

Sla

for the placement of the compacted pods of

potentially acid-forming material; how the

potentially acid-forming material will be placed in

pods and compacted; and where and what material

will be used for four feet of non-toxic and non-

combustible cover. Cut-by-cut descriptions should

be provided * * * along with material balances for

each type of spoil.”

(Exh. R-15 at 3, 4).

In its response to KFO's deficiency letter of July 25, 1988,

Rith acknowledged the presence of approximately 235,000

cubic yards of potentially acid-forming shale immediately

above and below the Sewanee coal seam (Exh. R-19 at item

67.c). To prevent the formation of acid drainage, petitioner

selected "an isolation and treatment approach." Id. Its

TMHP, responding to KFO's deficiency letter, states in

part:

The shale layer under the Newton sandstone and

approximately about 3 feet below the Sewanee seam will be

removed by dozers with rippers, loaders, trucks or scrapers.

This potentially acid forming shale may have to be

loosened by careful blasting to facilitate handling. The

removal of the acid shale shall be accomplished in a manner

that promotes break up of the shale into as fine a particle

size as possible. If the shale is ripped, it is to be cross

ripped and tracked over several times to break the shale into

particles with a maximum size of 4 to 6 inches. If blasting

is necessary, a shot pattern that produces a minimum size

particle will be utilized. It is recognized that the minimum

sized shale particles produced will promote compaction to

the desired standard.

The pods will be constructed essentially as spherical

segments to insure positive drainage from the compacted

52a

surface. The diameter of segments will vary depending

upon the quantity of acid material to be stored. The number

and placement of segments will be determined from

advanced drilling of each cut prior to mining.

(Exh. R-19 at item 67.c).

Rith also reviewed the probable hydrologic consequences

of its TMHP and responded to KFO's deficiency letter in

this manner:

The concept of minimizing contact of water with acid

material disposed in compacted pods over a sandstone

underdrain depends upon differential permeabilities

between the areas around the pods and the compacted pods.

To document the compactibility of the shale and the

resulting impermeable nature of a compacted pod,

laboratory determinations of permeability were conducted

on the shale from the RITH ENERGY mine. * * *

_ The laboratory studies indicated that the shale material

available from the mine site can be compacted to achieve

permeability values that will minimize contact of water

with acid material resulting in no anticipated impact on the

hydrologic balance’ due to the disturbing of potentially acid

forming material during mining. The test results indicated

that field compaction of acid material to a Proctor density

that would result in a hydraulic conductivity of 5x10<-

5>cm/sec or less should be the goal. To achieve the desired

differential permeability around the pods, the resulting

> "Hydrologic balance" is the relationship between the quality

and quantity of inflow to, outflow from, and storage in a

hydrologic unit such as a drainage basin, aquifer, soil zone, lake,

or reservoir. It encompasses the quantity and quality

relationships between precipitation, runoff, evaporation, and the

change in ground and surface water storage. 30 CFR 710.5.

53a

hydraulic conductivity around the pods should be greater

than 1x10<-3>cm/sec.

(Exh. R-19 at item 77.b.5),

As noted above, KFO's Maddox found that Rith's TMHP

lacked the detail necessary to find that regulations 30 CFR

942.774.13(c) and 30 CFR 942.773.15(c) had been

satisfied. At the hearing before Judge Torbett, OSMRE

also presented evidence that Rith underestimated the

volume of acid-forming material (Tr. 436-45). Such

underestimation caused OSMRE to conclude that Rith's

pods would be 58 percent undersized and, therefore,

incapable of housing the toxic material (Tr. 445-46).

Additional testimony was offered by OSMRE that

temporary storage of toxic material would be necessary at

certain cuts in the mining plan (Tr. 437-38).

In his decision, Judge Torbett found that "the clear weight

of the evidence" showed that Rith significantly

underestimated the volume of toxic material on-site. This

fact and the further finding that a plan for temporary

storage was necessary, but lacking, caused Judge Torbett to

conclude that serious doubts existed that Rith could reclaim

the site as required by law. The Judge also conch.ided that

without a detailed operational plan it would be impossible

for OSMRE to make a rational judgment as to whether Rith

was in fact reclaiming the site as required.

Judge Torbett also focused on Rith's duty to demonstrate

that its operation was designed to prevent material damage

to the hydrologic balance outside the permit area, when

considered with the probable cumulative impacts of all

anticipated coal mining on the hydrologic balance in the

cumulative impact area. 30 CFR 942.773.15(c)(5). The

Judge quoted from James Hughes, a physical scientist

employed by OSMRE, who testified that Significant

54a

Revision No. 10 contained data "inadequate to make a

complete determination of whether the proposed acid

materials handling plan would adequately protect water

quality" (Tr. 372).

OSMRE's concerns focused on the size, compaction, and

permeability of shale particles that would be used to isolate

potentially acid-forming materials from the Sewanee

Conglomerate aquifer below. Specifically, OSMRE

doubted whether a small enough particle could be achieved

on-site and compacted to form an impermeable buffer

between the toxic materials and percolating groundwater.

Judge Torbett found undisputed the presence of a highly

acidic over-burden above and below the Sewanee coal seam

that Rith intended to mine.® Also undisputed, the Judge

found, was OSMRE's evidence of the potential acidity of

the north side of the minesite. This finding was clear, the

Judge noted, even though Rith argued that it had mined the

Sewanee seam on the south side without evidence of acid

mine drainage.

Regarding Rith's duty to prevent material damage to the

hydrologic balance, 30 CFR 773.15(c)(5), Judge Torbett

summarized his findings-at page 26 of his decision:

“The undersigned finds that the overburden on the

north side of Applicant's permit was undeniably of

a highly acidic nature. Unless Applicant could

demonstrate that the pod concept would work, there

would have been a high probability that there would

be acid mine drainage into the Sewanee

Conglomerate aquifer. Given the importance of

® In addition to the Sewanee, Rith intended to mine the

Richland coal seam.

5Sa

particle size to the issue of permeability of the pods,

the undersigned finds that [OSMRE's] concerns for

damage to the hydrology from Applicant's proposed

toxic material handling plan were legitimate.”

Testimony was also received at the hearing in support of

Rith's argument that undue influence was brought to bear

upon OSMRE by the involvement of the Environmental

Protection Agency, various political figures, and intervenor

Save Our Cumberiand Mountains, Inc. (SOCM), in the

administrative process. Judge Torbett found that petitioner

had failed to provide substantial evidence of any undue

influence in the decisionmaking process.

Based on our review of the record we find that the

evidence supports Judge Torbett's decision that OSMRE

properly denied Rith's application for permit revision.

In its statement of reasons on appeal, Rith stresses that

OSMRE's concern for the high potential acidity of shales

near the Sewanee seam is belied by the fact that "during the

entire time Rith mined the Richland and Sewanee coal

seams on the south side of its permit and through the 2-1/2

to 3 years since that portion of this site has been reclaimed

there has been no acid mine drainage problem no, any

evidence of any acid mine drainage problem" (Statement of

Reasons, July 10, 1989, at 18). The potential for acid-mine

drainage has not developed, Rith contends, because its

originally approved manner of handling overburden and

potentially acid-forming material, as used on the south side

of the permit, has worked. Id. at 19.

Rith also contends that OSMRE has disregarded its own

geologic conclusions concerning the impact of mining on

groundwater. Even conceding that the geochemical data

about the overburden of the Sewanee coal seam shows a

greater potential for the development of acid water than

56a

first determined,’ petitioner states, the conclusions

regarding the physical geology of the site remain

unchanged. In two environmental assessments (EA's)

prepared by the agency, one prior to permit suspension and

one after, OSMRE determined that vertical movement of

groundwater was "restricted by an impermeable strata,"

Rith notes (Exh. A-9 at 8). Quoting from the later EA,

petitioner states,

The low transmissivity of the Pennsylvanian strata results

in a low recharge rate to bedrock aquifers and minimizes or.

prevents circulation of ground water from the si

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