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This is the Office of Surface Mining's library of COALEX Research Reports. COALEX is a database of mining and reclamation information, including the Surface Mining Law and regulations, maintained in LEXIS-NEXIS -- a commercial, on-line research service. These reports have been compiled under a cooperative agreement between the Office of Surface Mining and the Interstate Mining Compact Commission, which represents most U.S. coal producing states. The following report includes an analysis of a specific issue requested by a state regulatory authority with responsibility for carrying out the Surface Mining Law. Copies of the research reports and attachments are available to the public, upon request. For additional information, or to obtain copies of the listed attachments, contact Ron Tarquinio by phone at (202) 208-2882 or by e-mail at rtarquin@osmre.gov. 
                   
COALEX State Comparison Report - 306
November, 1994

Steven Lachman
Assistant Counsel
Office of Chief Counsel
Department of Environmental Resources
400 Waterfront Drive
Pittsburgh, Pennsylvania 15222-4745

TOPIC: PROCEDURES FOR FORFEITURE OF SURETY BONDS

INQUIRY: Pennsylvania recently amended its SMCRA to require bond sureties to pay the amount of
a forfeited bond within 30 days of receiving notice of the forfeiture. One challenger to this amendment
argued that the requirement of payment prior to a hearing is a deprivation of due process, prohibited
by the 14th Amendment. This case was settled, but additional challenges are anticipated. Do any other
states require the payment of forfeited surety bonds prior to a hearing on the merits of the forfeiture?
If yes, have there been any challenges to the legislation and what was the outcome? What information
on the federal regulations is available?

SURVEY RESULTS: A telephone survey of IMCC states was conducted. 
The states were asked whether they required payment of the bonds prior to a hearing on the merits
of the forfeiture. For some states, a description of Pennsylvania's procedures for forfeiting surety bonds
was provided and a comparison of procedures requested. 

     Pennsylvania site: 52 PS Sec. 1396.4(h)
     SMCRA site: 525(d)
     Federal regulations site: 30 CFR Sec. 800.50 (formerly Sec. 808.11)

  A description of Pennsylvania's procedure appears below, followed by the results of the survey.
Copies of several state code sections, an OSM Directive, Federal Register preambles to federal
regulations and a COALEX State Inquiry Report are attached for your review.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

PENNSYLVANIA'S PROCEDURE: Procedures for revoking bond are separate from procedures for
forfeiture of bonds. When a final determination is made to revoke a permit, both the permittee and
the surety are notified. Notice of intent to forfeit bonds is then sent to the permittee and surety
indicating that the permittee has 30 days to correct site conditions; both the permittee and the surety
have the right to request a conference. If the site conditions are not corrected, the state issues a
notice of forfeiture to the permittee and the surety with a demand letter requesting payment of the
forfeited bonds within 30 days. If the surety does not pay within that time frame, the state may move
to collect. The surety has the right to file an appeal of the bond forfeiture with the Pennsylvania
Environmental Hearing Board.


ALABAMA   
  Alabama does not require payment of forfeited bonds prior to a hearing on the merits. There have
been few problems with sureties 
on forfeited bonds.


ARKANSAS
  Arkansas does not require payment of forfeited bonds prior to a hearing on the merits.


ILLINOIS
  The surety is not required to pay on the forfeited bonds prior to getting a hearing. A surety can
appeal decisions on bond forfeiture but not decisions on permit revocation.


INDIANA
  Once a determination is made to revoke a permit, the permittee and surety are sent a demand letter
stating that the permittee has 30 days to complete reclamation or the bond is forfeited. During this
period both the permittee and surety have several options: 

     1. The permittee can complete the reclamation. 

     2. A settlement agreement may be concluded with the surety whereby the surety completes
the reclamation with the understanding that failure to perform the all required work will result in
demand for the amount of the bonds.
     
     3. The surety can request a hearing on the forfeiture (but not on the earlier permit revocation).

     4. The bonds are forfeited.

  There has been little litigation on bond forfeitures. 



KENTUCKY
  Two and a half years ago, a reclamation procedure was instituted which resulted in a reduction of
surety challenges to bond forfeiture. Sureties are sent copies of violations. If "failure-to-abate"
Cessation Orders (COs) are not contested and permits are to be revoked, the state attorneys begin
the process of seeking bond forfeiture. A letter is sent to the surety giving them 30 days to declare if
they will exercise the right to complete the reclamation plan in lieu of forfeiture. If the surety wishes
to perform the reclamation, a reclamation agreement is completed, or the surety may decide to pay.
At the end of 30 days, if the surety has not responded, a demand letter is sent requesting the forfeited
amount.

  In some situations where permittees have challenged violations and requested hearings, the
regulatory authority may request that the hearing officer revoke the permit and forfeit the bond. In
this circumstance, a surety may challenge bond forfeiture at a hearing.


MISSOURI
  At present, permit revocation and bond forfeiture proceedings are considered at the same time. While
the surety is notified regarding possible permit revocation and bond forfeiture and may participate in
the hearing, only the permittee, not the surety, has appeal rights. 

  Missouri is considering amending its regulations. One possible change may be to send the surety a
demand letter after the hearing to revoke a permit in order to give the surety an opportunity to 
negotiate with the regulatory authority.


OHIO 
  In Ohio, sureties are notified of NOVs and COs; this serves as a "pre-notification" of impending bond
forfeiture. Permit revocation and bond forfeiture can occur at separate proceedings or at the same
time. Bond forfeiture orders are written to both the permittee and the surety. The permittee is
informed that their right to reclaim is forfeited; the surety is informed that the permittee has forfeited
the right reclaim and the surety has 60 days to determine if it will complete the reclamation work. If
the surety decides to conduct the reclamation, an agreement is completed with the regulatory
authority; if the surety does not decide to reclaim, the regulatory authority demands forfeiture. The
surety has the right to appeal the bond forfeiture, but not the permit revocation.


VIRGINIA  
  A notice of intent to forfeit bond is sent to both the permittee and the surety. The permittee has 30
days to correct site conditions. If the conditions are not corrected, a notice of forfeiture is sent to the
permittee and the surety with a letter 
requesting payment on the bond. However, a hold is put on collection if the notice of forfeiture is
appealed by the surety.


WEST VIRGINIA
  The current regulations call for a letter to be sent to the permittee with notification that the permit
will be revoked in 30 days; a copy is sent to the surety. If the permittee does not request a hearing,
a final revocation notice is sent to the permittee and the surety. The final notice provides the surety
14 days to determine if it will perform the reclamation or pay.

  A new law, passed by the state legislature to take effect in July, 1994, calls for the forfeited bond to
be paid to the special state reclamation fund when a permit is revoked. The special reclamation fund
will be used to pay for reclamation. Any moneys remaining from a bond after reclamation of the
originally permitted area is completed will remain in the reclamation fund rather than be returned to
the surety. Industry is preparing to sue West Virginia because the state changed its regulations,
amending its SMCRA program, prior to approval from OSM. [NOTE: A copy of the statute section is
attached.]


ATTACHMENTS
A.   SMCRA Section 525(d)
B.   State Code Sections
     1.   Pennsylvania: 52 P.S. Section 1396.4(h) (1994).
     2.   W. Va. Code Section 22-3-17 (1994).
     3.   Colorado: Reg. Sec. 3.04.1 (1982).
     4.   Indiana: 310 IAC 12-4-17 (1983).
     5.   Ohio: 
          a.   Reg. Sec. 1501:13-7-06 (1989).
          b.   Statute Sec. 1513.18 (1986).
     6.   Virginia: Reg. Sec. 480-03-19.800.50 (1985).
C.   OSM Directive, Subject No. REG-10, Transmittal No. 339, "Bond Forfeiture" (Issued date:
     5/26/87).
D.   Federal Register Notices
     1.   44 FR 14902 (March 13, 1979). 
          a.   Part 808.
          b.   Part 805.
     2.   46 FR 16276 (March 12, 1981). Performance bonding.
     3.   46 FR 42082 (August 19, 1981). Performance bonding.
     4.   46 FR 45082 (September 9, 1981). Performance bonding.
     5.   48 FR 32932 (July 19, 1983). Parts 800 and 808.
E.   COALEX State Inquiry Report - 146 , "Surety's right to a hearing in bond forfeiture proceedings"
     (1990). Enclosed with one attachment:
     ALLIED FIDELITY INSURANCE CO. v ENVIRONMENTAL QUALITY COUNCIL, 753 P 2d 1038
     (Wyoming 1988).


Survey conducted by: Joyce Zweben Scall

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