Lindsey Coal Mining v. Comm Social Security , 90 F.3d 688 ( 1996 )

Opinions of the United
1996 Decisions States Court of Appeals
for the Third Circuit
7-26-1996
Lindsey Coal Mining v. Comm Social Security
Precedential or Non-Precedential:
Docket 95-3626
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UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
_____________
NO. 95-3626
_____________
LINDSEY COAL MINING COMPANY, Liquidating
Trust by its Liquidating Trustees,
H. Robert Lasday and Elaine K. Light,
Appellant
v.
SHIRLEY S. CHATER, Commissioner of Social Security;
UNITED MINE WORKERS OF AMERICA COMBINED BENEFIT FUND,
and its Trustees, Marty D. Hudson, Michael Holland,
Elliot A. Segal, Thomas O.S. Rand, Carlton R. Sickles,
Gail R. Willensky and William P. Hobgood
_____________________________________
On Appeal From the United States District Court
For the Western District of Pennsylvania
(D.C. Civ. No. 94-cv-00143)
_____________________________________
Argued: June 3, 1996
Before: BECKER, MANSMANN, Circuit Judges, and
BROTMAN, District Judge.
(Filed July 26, l996)
JEFFREY LUNDY, ESQUIRE (ARGUED)
Lukehart & Lundy
219 East Union Street
P.O. Box 74
Punxsutawney, PA 15767
Attorneys for Appellants
FRANK W. HUNGER, ESQUIRE
Assistant Attorney General
FREDERICK W. THEIMAN, ESQUIRE
United States Attorney
JEFFREY CLAIR, ESQUIRE (ARGUED)
Appellate Staff
Civil Division
Department of Justice
Washington, DC 20530-0001
Attorneys for Appellees -
Commissioner of Social Security
PETER BUSCEMI, ESQUIRE (ARGUED)
DEAN C. BERRY, ESQUIRE
Morgan, Lewis & Bockius, LLP
1800 M Street, N.W.
Washington, DC 20036
JOHN R. MOONEY, ESQUIRE
MARILYN L. BAKER, ESQUIRE
Beins, Axelrod, Osborne,
Mooney & Green, P.C.
1341 G Street, NW, Suite 700
Washington, DC 20005
DAVID W. ALLEN, ESQUIRE
Office of General Counsel
UMWA Health and Retirement Funds
4455 Connecticut Avenue, NW
Washington, DC 20008
Attorneys for Appellees - UMWA
Combined Benefit Fund and its
Trustees
______________________
OPINION OF THE COURT
______________________
BECKER, Circuit Judge.
Lindsey Coal Mine Company Liquidating Trust ("Lindsey")
maintains that it is not subject to the Coal Industry Retiree
Health Benefit Act of 1992 ("Coal Act"), and, alternatively, that
the Coal Act, as applied to Lindsey, violates the Due Process and
Takings Clauses of the United States Constitution. It brought
suit in the district court, in the nature of a declaratory
judgment action, seeking judicial review of a final action of the
Commissioner of Social Security and requesting summary judgment
on its claims. The district court denied Lindsey's motion for
summary judgment and, instead, granted summary judgment for the
defendants, the Commissioner of Social Security and the United
Mine Workers of America Combined Benefit Fund. See Lindsey Coal
Mining Co. Liquidating Trust v. Shalala, 901 F. Supp. 959 (W.D.
Pa. 1995). The district court held (1) that the Commissioner did
not abuse her discretion in determining that Lindsey was covered
by the Coal Act, and (2) that the Coal Act did not offend the Due
Process or Takings Clauses. Id. We affirm.
I. BACKGROUND FACTS
The provisions of the Coal Act and the history leading
up to its enactment are already well chronicled. See, e.g.,
Davon, Inc. v. Shalala, 75 F.3d 1114 (7th Cir. 1996), petition
for cert. filed, 64 U.S.L.W. 3741 (U.S. Apr. 22, 1996) (No. 95-
1709), 64 U.S.L.W. 3742 (U.S. Apr. 23, 1996) (No. 95-1751); In re
Blue Diamond Coal Co., 79 F.3d 516 (6th Cir. 1996); Barrick Gold
Exploration, Inc. v. Hudson, 47 F.3d 832 (6th Cir.), cert.
denied, 116 S. Ct. 64 (1995); In re Chateaugay Corp., 53 F.3d 478(2d Cir.), cert. denied, 116 S. Ct. 298 (1995); Coal Commission
Report: A Report to the Secretary of Labor and the American
People 16-19 (Nov. 1990). We, therefore, will provide only a
brief summary here.
Congress enacted the Coal Act, 26 U.S.C.A. 9701-9722
(West Supp. 1995), to ensure that coal mine retirees and their
dependents would continue to receive health and death benefits.
Miners and their dependents had been receiving benefits under a
series of agreements, stretching back to the 1940s, established
by the coal industry and the miners' union. Faced with
shortfalls in the trusts that provided for these benefits,
Congress acted to provide adequate funding. It established,
through the Coal Act, a comprehensive regime to provide benefits
to retired coal workers and their dependents, funded through
premiums allocated among present and former businesses in the
coal industry.
The material facts in this case pertain to the history
of Lindsey's structure and activities, especially over the last
two decades. Incorporated in Pennsylvania in 1910, Lindsey Coal
Mining Company mined coal in Pennsylvania for forty-two years.
Through its membership in the Central Pennsylvania Coal Producers
Association (CPCPA), Lindsey became a signatory to the 1947
National Bituminous Coal Workers Agreement (NBCWA), the 1950
NBCWA, and the February 1, 1951, amendment to the 1950 NBCWA.
These agreements were negotiated with the union that represented
Lindsey's miners, the United Mine Workers of America (UMWA).
Lindsey contributed approximately $230,000.00 to the multi-
employer benefit fund established by these NBCWAs. In 1952,
Lindsey ceased its active coal mining operations and began
leasing its properties, for royalties, to various coal, gas, and
logging operators as well selling real estate and scrap metal.
In 1974, the shareholders of Lindsey Coal Mining
Company decided, in large part for tax reasons, that it was no
longer "desirable" to maintain Lindsey in its corporate form. In
March 1975, noting that "time [was] of the essence," the
shareholders of Lindsey entered into a trust agreement to "wind
up the affairs" of the corporation as quickly as possible. The
trust agreement granted to a Liquidating Trustee full corporation
powers in the former assets of Lindsey Coal Mining Company,
including its real estate and mineral reserves. See Lindsey
Coal Mining Co. Liquidating Trust v. Shalala, 901 F. Supp. 959,
964 (W.D. Pa. 1995).
It is now 1996, and Lindsey's liquidation has yet to be
completed. In fact, liquidation is not expected to be completed
for at least another two to four years, when all mineral and
timber resources will have been depleted or extracted.
Meanwhile, during the past twenty years, Lindsey -- through the
Liquidating Trust -- has negotiated the lease of land to a
shopping center complex; leased land for coal, gas, and timber
extraction; sold scrap metal; and paid approximately $20,000 per
year in employee wages. These activities generated significant
income for Lindsey -- money that the Trust collects and
distributes to the beneficiaries of the trust, the former
shareholders of Lindsey Coal Mining Company.
In 1993, the Commissioner of Social Security assigned
Lindsey liability for twenty-three of its former miners (or their
dependents or beneficiaries) pursuant to the Coal Act, to be paid
the first year at a monthly rate of $6,667.34. Although
Lindsey's disputes these obligations under the Coal Act, it has
made timely payments to the Combined Fund to avoid the penalties
for nonpayment. See 26 U.S.C.A. 9707(b) (establishing penalty
of $100 per day for nonpayment of premiums).
II. APPLICATION OF THE COAL ACT
A. Lindsey's Contentions and Scope of Review
Lindsey's first contention is that it is not subject to
the provisions of the Coal Act. The Coal Act authorizes the
Commissioner to assign premiums to any "signatory operator" (or
"related party") that remains "in business." 26 U.S.C.A.
9706(a). Lindsey is exempt from the Coal Act, it argues, because
it is neither a "signatory operator" nor "in business" within the
meaning of the Act. The Commissioner found otherwise.
Our review is deferential. In reviewing the district
court's order, we examine the agency's action under the same
standard of review properly applied by the district court, seeFlorida
Power & Light Co. v. Lorion, 470 U.S. 729, 744 (1985),
granting favorable inferences from disputed facts to Lindsey
since this is a summary judgment, see Matsushita Elec. Indus. Co.
v. Zenith Radio Corp., 475 U.S. 574 (1986). Although Lindsey
sought review under the declaratory judgment act, see 28 U.S.C.A.
2201, the determination that plaintiff Lindsey is a "signatory
coal operator" that remains "in business" -- and thus liable for
Coal Act premiums -- was a final administrative decision made by
the Commissioner of Social Security. See 26 U.S.C.A. 9706(f).
We review the Commissioner's decision as a final agency action
brought under the Administrative Procedure Act. See 5 U.S.C.A.
704 ("Agency action made reviewable by statute and final agency
action for which there is no other adequate remedy in a court are
subject to judicial review."). Thus, the question before us, as
before the district court, is whether the administrative
determination challenged by Lindsey satisfies the applicable
standard of review set forth in the Administrative Procedure Act:
whether the agency action is "arbitrary, capricious, an abuse of
discretion, or not in accordance with law." 5 U.S.C.A.
706(2)(A).
B. "Signatory Operator"
We first take up Lindsey's contention that it is not
covered by the Coal Act because it is not a "signatory operator."
A "signatory operator" is a "person which is or was a signatory
to a coal wage agreement." 26 U.S.C.A. 9701(c)(1). It is
undisputed that the Lindsey Coal Mining Corporation was a
signatory to two coal wage agreements, one in 1947 and one in
1950. The only question, then, is whether the current Lindsey
Liquidating Trust is the same "person" as the Lindsey Coal Mining
Company that became a signatory to those agreements.
Lindsey contends that it is not a "signatory operator"
that can lawfully be assigned premium liability under the statute
because it is not the same entity as the Lindsey Coal Mining
Company. Because, in 1975, the Lindsey Coal Corporation became
the Lindsey Liquidating Trust, the Lindsey Coal Mining Company
has not existed for over twenty years, Lindsey argues. The
government responds, and the Commissioner and the district court
held, that Lindsey Coal is a "signatory operator" because the
current trust is essentially the same entity -- and thus the same
"person" under the Coal Act -- as the Coal Mining Company.
We cannot say that the Commissioner abused her
discretion in determining that Lindsey, in its current form as
Lindsey Liquidating Trust, is the same "person" that was a
signatory to the coal agreements. The former shareholders of the
corporation are now the beneficiaries of the trust, and the
trust engages in the same activities -- primarily leasing its
property for coal, gas, mineral, and lumber extraction -- that
the corporation did for over twenty years before it changed form.
And, as Lindsey appears to concede, its mere cessation of active
mining activities in 1952 -- while it continued to operate as the
Lindsey Coal Mining Company -- could not transform it into a
different entity. The Coal Act makes clear that a "person" can
be liable for premiums even if it is no longer in the coal
industry at all. See 26 U.S.C.A. 9701(c)(7) ("[A] person shall
be considered to be in business if such person conducts or
derives revenue from any business activity, whether or not in the
coal industry.") (emphasis added). Thus, Lindsey is a "signatory
operator" for purposes of the Coal Act.
C. "In Business"
Lindsey also contends that is not covered by the Coal
Act because it is no longer "in business" under the statute.
The Coal Act provides that a "signatory operator" is "in business
if such person [1] conducts or [2] derives revenue from any
business activity, whether or not in the coal industry." 29
U.S.C. 9701(c)(7). Lindsey concedes, as it must, that the
trust derives substantial "revenues" from the former assets of
Lindsey Coal Mining Company. It maintains, however, that it is
not "in business" because its activities are insufficient to rise
to the level of "business activity."
We hold that the Commissioner did not abuse her
discretion in determining that Lindsey remained "in business" for
purposes of the Coal Act. The Commission relied on a record
which shows that Lindsey, as a "liquidating trust," has generated
substantial income from leasing and sales ventures, the same
activities it conducted for its last twenty-two years as a
corporation. Since beginning its "liquidation," Lindsey has (1)
negotiated the lease of land to a shopping center complex; (2)
entered into four coal leases permitting other companies to mine
coal on trust property in exchange for royalties; (3) signed at
least 13 agreements for the harvesting of timber on trust
property; (4) derived royalties from six natural gas leases; (5)
sold scrap metal; and (6) employed a part-time secretary at
approximately $20,000 per year. These activities generated
almost $300,000 in income and capital gains for Lindsey in 1992
alone. This list of for-profit business endeavors could support
a decision by the Commissioner that Lindsey was itself
"conduct[ing]" business activity.
Lindsey's own "conduct" is not necessary, however, to
sustain the Commissioner's determination that it is "in business"
for purposes of the Coal Act. The statutory definition of "in
business" is broad, including within its scope not only (1) an
entity that "conducts" business activity, but also (2) one who
"derives revenue" from business activity. See 26 U.S.C.A.
9701(c)(7). Because the "conducts" prong is provided for
separately, the "derives revenue" prong does not require the
party liable under the Coal Act to itself "conduct" a business
activity. Otherwise, the "derives revenue" option would be
surplusage, which cannot have been Congress's intent. By the
statute's own terms, then, someone other than the "signatory
operator" may be the one engaging in the business activity.
In Lindsey's case, the companies conducting the mining
and harvesting operations pursuant to its leases with Lindsey are
certainly engaging in "business activities." And Lindsey cannot
contest that it is "deriving revenue" from these business
activities. Thus, Lindsey is covered by the plain terms of the
statute.
This interpretation is buttressed by the legislative
history, which indicates that the statute was designed to cover
just this sort of situation -- one entity deriving revenue from
other entities' extraction of coal and other minerals from leased
property. See 138 Cong. Rec. S17635 (daily ed. Oct. 8, 1992).
Indeed, without this definition of "in business," "signatory
operators" could escape responsibility simply by divesting their
actual mining operations and hiring outside contractors to
extract the minerals.
Lindsey relies on two faulty premises for its argument
that it is no longer "in business." First, it cites to cases and
other sources defining "carrying on a business" and "liquidating
trust" under the Internal Revenue Code. But definitions embodied
in a different statute do not control as to whether Lindsey is an
extant "signatory operator" for purposes of the Coal Act. The
Coal Act supplies its own definitions and serves a distinct
purpose -- defraying benefit costs for retired miners, not
defining the organization's income tax status.
Second, Lindsey claims that the Social Security
Administration's internal guidelines demonstrate its status as a
liquidating trust, exempt from the "in business" definition.
This argument is also misplaced. To begin with, the regulations
that Lindsey cites are internal interpretative guidelines that
lack the force of law. See Matter of Seidman, 37 F.3d 911, 930-
31 (3d Cir. 1994). Therefore, the agency is not bound to follow
them and Lindsey is not entitled to rely on them. Moreover, even
on the guidelines' own terms, Lindsey cannot establish that it is
not "in business." Although the guidelines exempt liquidating
trusts from the "in business" definition, Lindsey does not appear
to qualify as a liquidating trust. The most relevant instruction
appears to state that an entity will lose its status as a
liquidating trust if "the liquidation is unreasonably prolonged."
Review Instructions, Section N.7.b. The Lindsey Trust has been
in the process of "liquidating" for over twenty years. By its
own testimony, this process will not be complete for several more
years when its resources will finally be exhausted from
harvesting and mining operations. Thus, the Commissioner did not
abuse her discretion in concluding that plaintiffs remained "in
business" and liable for Coal Act premiums.
III. Due Process
We next consider Lindsey's argument that, even if it is
covered by the Coal Act, the Act amounts to a due process
violation in Lindsey's case. The district court concluded that
the Coal Act is rational economic legislation consistent with the
substantive requirements of the Due Process Clause. See Lindsey
Coal Mining Co. Liquidating Trust v. Shalala, 901 F. Supp. 959,
967-68 (W.D. Pa. 1995). Noting the extremely deferential review
accorded economic legislation, the court reasoned that it was
rational for Congress to spread the costs of the Combined Fund's
benefits to those employers who had profited from the labor of
UMWA miners and who, at some time, had contributed to UMWA multi-
employer benefit funds. Id.It is, of course, well settled that a statute adjusting
the burdens and benefits of economic life is subject to minimal
judicial scrutiny under the substantive aspect of the Due Process
Clause. See Usery v. Turner Elkhorn Mining Co., 428 U.S. 1(1976) (rejecting due process challenge to Black Lung Act, which
required coal mine operator to provide compensation for former
miner's death or disability arising out of work in mines even
though former miner terminated his employment before Act was
passed); Concrete Pipe and Products v. Construction Laborers
Pension Trust, 508 U.S. 602 (1993) (same for Multiemployer
Pension Plan Amendments Act, which required employer to pay a
share of plan's unfunded vested benefits when it withdrew). A
court must uphold such measures if there is any "conceivable"
rational basis for the legislative scheme. See FCC v. Beach
Communications Inc., 508 U.S. 307, 313 (1993).
The reporters are full of court of appeals' decisions
concluding, like the district court, that the Coal Act is
rational economic legislation that comports with the substantive
requirements of the Due Process Clause. See Davon, Inc. v.
Shalala, 75 F.3d 1114 (7th Cir. 1996), petition for cert. filed,
64 U.S.L.W. 3741 (U.S. Apr. 22, 1996) (No. 95-1709), 64 U.S.L.W.
3742 (U.S. Apr. 23, 1996) (No. 95-1751); In re Blue Diamond Coal
Co., 79 F.3d 516 (6th Cir. 1996); Barrick Gold Exploration, Inc.
v. Hudson, 47 F.3d 832 (6th Cir.), cert. denied, 116 S. Ct. 64(1995); In re Chateaugay Corp., 53 F.3d 478 (2d Cir.), cert.
denied, 116 S. Ct. 298 (1995). We agree with the views expressed
so well in these cases.
Notwithstanding the considerable array of authority
opposing it, Lindsey argues that the Coal Act nonetheless
violates substantive due process in its particular case.
According to Lindsey, because it never actually promised
benefits, Congress would act irrationally in holding it
responsible for payments under the Coal Act. Moreover, the
district court identified no actions, Lindsey says, that could
amount to implicit promises of lifetime benefits.
These arguments are wide of the mark. Congress found
that all employers who were signatories to wage coal agreements
during the years in question created an expectation of lifetime
benefits, and it determined that the fairest means to fund these
liabilities was through premiums allocated among these operators.
See 138 Cong. Rec. S17603 (daily ed. Oct. 8, 1992) (conference
committee report). Thus, the contention that Lindsey never
explicitly promised lifetime benefits is irrelevant: Congress
found that the promise was implicit and, of course, Congress does
not have to be correct in its beliefs -- just reasonable.
Lindsey's argument that the district court found no
actions on Lindsey's part that could give rise to an expectation
of benefits is similarly unavailing. To begin with, it is
incorrect. As the district court explained, Lindsey was a
signatory to the two wage coal agreements, actions which it found
sufficient to constitute an implicit promise of lifetime
benefits. See Lindsey Coal, 901 F. Supp. at 963. Moreover,
Lindsey -- not the district court -- bears the burden of proof in
its attempt to invalidate economic legislation on substantive due
process grounds.
In addition to being incorrect on their own terms,
Lindsey's arguments fundamentally misapprehend the substantive
due process guarantee. The essence of Lindsey's position seems
to be that, while the Coal Act may contain generally rational
classifications, the Act is irrational as applied to it. In itscase,
Lindsey contends, being a signatory to a wage agreement
could not have amounted to even an implicit promise of lifetime
benefits. But this argument cannot sustain a substantive due
process challenge. Just because a measure is over- or under-
inclusive will not render it irrational. See Usery, 428 U.S. at
19 ("[W]hether a broader cost-spreading scheme would have been
wiser or more practical under the circumstances is not a question
of constitutional dimension."). A fifteen-year-old cannot
successfully challenge a minimum age requirement of sixteen for
driving on the basis that she would be a great driver even though
most individuals of that age would not.
For the reasons set forth in the cases that have
already canvassed this subject, see supra, we conclude that the
Coal Act is a rational exercise of Congress's power to protect
retiree benefits and to ensure that benefits disputes do not
again disrupt interstate commerce. The statute apportions the
burdens of funding these benefits among coal operators who had
employment relationship with miners, who were bound to national
wage agreements establishing a retirement benefits program for
those miners (and their beneficiaries), and who profited from the
miners' reasonable expectation of receiving those benefits upon
their retirement. See 26 U.S.C.A. 9701. While Lindsey has
persuaded us that the Coal Act impacts it harshly, it has not
carried its heavy burden of demonstrating that this legislative
scheme is irrational.
IV. Takings
Finally, we evaluate Lindsey's contention that the Coal
Act, when applied to it, effects an unconstitutional "taking" in
violation of the Fifth Amendment. The district court held that
the Coal Act does not violate the Takings Clause as applied to
the plaintiffs. See Lindsey Coal Mining Co. Liquidating Trust v.
Shalala, 901 F. Supp. 959, 968-71 (W.D. Pa. 1995). Applying the
three-pronged inquiry mandated by Supreme Court "takings"
precedent, see Penn Cent. Transp. Co. v. New York City, 438 U.S.
104 (1978), the court reasoned that: (1) the character of the
statute does not entail a physical invasion of property but
assesses what is essentially a tax to continue a benefits
program; (2) the economic impact on plaintiffs is sufficiently
proportionate to the nature of its relationship with
beneficiaries; and (3) especially given the heavily regulated
nature of the coal industry (including a period of
nationalization), any interference with plaintiffs' investment
backed-expectations is not so severe as to outweigh other factors
militating against finding a "taking." See Lindsey Coal, F.
Supp. at 968-71.
We agree. As with the Due Process challenge, every
court of appeals to consider a "takings" challenge to the Coal
Act has rejected it. See Davon, Inc. v. Shalala, 75 F.3d 1114(7th Cir. 1996), petition for cert. filed, 64 U.S.L.W. 3741 (U.S.
Apr. 22, 1996) (No. 95-1709), 64 U.S.L.W. 3742 (U.S. Apr. 23,
1996) (No. 95-1751); In re Blue Diamond Coal Co., 79 F.3d 516(6th Cir. 1996); Barrick Gold Exploration, Inc. v. Hudson, 47
F.3d 832 (6th Cir.), cert. denied, 116 S. Ct. 64 (1995); In re
Chateaugay Corp., 53 F.3d 478 (2d Cir.), cert. denied, 116 S. Ct.
298 (1995). We endorse the reasoning of these cases. In
addition, the Supreme Court unanimously rejected a takings
challenge to an analogous statute (the Multiemployer Pension Plan
Amendments Act). See Connolly v. Pension Benefit Guar. Corp.,
475 U.S. 211 (1986). The Coal Act does not visit an
unconstitutional taking on Lindsey.
V. CONCLUSION
We hold (1) that the Commissioner did not abuse her
discretion in determining that Lindsey was covered by the Coal
Act, and (2) that the Coal Act, as applied to Lindsey, does not
offend the Due Process or Takings Clauses of the Fifth Amendment.
The judgment of the district court will be affirmed.