A three-judge panel at the U.S. Sixth Circuit Court of Appeals on May 21 agreed with the federal government that the state of Ohio should not have leased coal reserves to Buckingham Coal around a reservoir created by the U.S. Army Corps of Engineers.
The federal government had appealed from a district court’s denial of its motion for summary judgment and grant of the State of Ohio’s and Buckingham Coal’s motions for summary judgment in this action challenging Ohio’s right to lease Buckingham the right to mine coal lying beneath land acquired for a flood-control project.
In 1948, the United States and Ohio entered into a cost-sharing agreement to construct and maintain the Tom Jenkins Dam and Burr Oak Reservoir to control flooding in southeast Ohio’s Hocking River Basin. The project was designed and constructed by Corps, which determined that the project required the acquisition of certain property interests under and surrounding the dam, including subsurface mineral rights. The property interests were acquired, the dam was built, and the project operated within the parties’ joint understandings until the disagreement that triggered this court dispute.
In 2010, Ohio entered into two subsurface mineral leases with Buckingham, a coal company that owned and mined land surrounding the project. Notable is that Buckingham was recently acquired by Westmoreland Coal. The leases granted Buckingham rights to conduct mining activities within project lands, specifically, to construct a corridor beneath project lands to connect two non-project parcels of land Buckingham already owned. Buckingham was also granted the right to sell any coal extracted in the process.
When the Corps discovered that Ohio entered into the leases with Buckingham, it asked Ohio to cease all mining activities within project lands until it could determine whether mining would place the project at risk. The Corps took the position that Ohio was required to obtain the Corps’ approval for any mining activity involving project lands. Ohio and Buckingham initially complied with the Corps’ request, but after Buckingham altered its mining plans and secured the final license it needed to commence mining, Ohio and Buckingham advised the Corps that Buckingham would no longer cease mining activity and that they did not believe that the old cost-sharing agreement precluded the lease to Buckingham.
This prompted the United States to seek a temporary restraining order to prevent Ohio from permitting subsurface mining activities within project lands. After a hearing, the district court denied the United States’ motion for a temporary restraining order, finding that the United States had failed to show a likelihood of success on the merits. Also, relying on a defense expert’s testimony, the district court determined that the project would not be placed at risk by the leases.
The United States filed this action against Ohio and Buckingham seeking, among other things, a declaratory judgment that the terms of the cost-sharing agreement preclude Ohio (or any third party authorized by Ohio) from conducting mining activity in project lands without prior approval of the Corps. After discovery, all parties moved for summary judgment. The district court determined that “none of the acts, agreements, reports, or plans that form the legal basis for the [Project] clearly and explicitly prohibit Ohio from leasing coal interests in project lands owned by the state.” Accordingly, it denied the United States’ motion for summary judgment and granted both Ohio’s and Buckingham’s motions for summary judgment. The United States then took its case to the Sixth Circuit.
The May 21 appeals court decisiion said that Ohio lacked the authority to enter into the leases in question, in part because a “Project Report” dating back to these original agreements clearly said there was to be no mining on project lands. It reversed the district court’s grant of summary judgment to Ohio and Buckingham and its denial of the United States’ motion for summary judgment, and remanded the case to the lower court for entry of judgment consistent with this opinion.
Said Westmoreland Coal’s April 28 Form 10-Q report about Buckingham: “On January 1, 2015, we completed the acquisition of Buckingham Coal Company, LLC, an Ohio-based coal supplier (‘Buckingham’), pursuant to an agreement dated January 1, 2015 among WCC Land Holding Company, Inc. an affiliate of the Company for an initial cash purchase price of $34.0 million, which was reduced by a working capital adjustment of $1.6 million. The Buckingham operations are included in the Company’s Coal – U.S. segment. Separately, WCC Land Holding Company, Inc. entered into a five-year coal supply agreement with Buckingham’s primary customer, AEP Generation Resources Inc., which includes an obligation to purchase a minimum of 5.5 million tons of coal annually.”