FMSHRC Affirms Widening Scope of Persons Who Can Be Prosecuted Under Section 110(c)
The run of bad cases that has resulted in expanding the universe of individuals who can be civilly fined (and criminally prosecuted) as “agents of management” has continued, in a unanimous decision of the Federal Mine Safety & Health Review Commission (FMSHRC) in Secretary of Labor v. Bill Simola, employed by United Taconite LLC.
The March 7, 2012, ruling means that workers employed by a Limited Liability Company (LLC) — which are often much smaller operations than regular corporations – will face personally civil penalties of up to $70,000 under Section 110(c) of the Mine Act. Section 110(c) penalties typically are imposed for agents’ involvement in Section 104(d) “unwarrantable failure” violations, as well as for training withdrawal orders under Section 104(g)(1) that involve high negligence and for high negligence Section 104(a) violations linked to imminent danger orders issued under Section 107(a) of the Mine Act.
All of these are also considered “elevated actions” for purposes of Mine Safety and Health Administration (MSHA) Pattern of Violations findings, which has led to increased MSHA resistance to modifying such findings during settlement negotiations. In addition, the special investigation files created during Section 110(c) investigations are reviewed at MSHA Headquarters for possible referral to the U.S. Department of Justice, for criminal prosecution under other provisions of Section 110.
The decision was made under interlocutory review, after Bill Simola, the pellet plant coordinator for United Taconite, was held liable under Section 110(c) linked to two Section 104(d) unwarrantable citation/orders — one for unsafe access (56.11001) and the other for a missing guard (56.14107(a)). He appealed ALJ Feldman’s ruling that Section 110(c) could be applied to agents, officers, and directors of an LLC, arguing that the Mine Act specifically mentions enforcement flowing from status within a corporation, but that Congress did not mention LLCs — a separate legal entity status — in the Mine Act. The Commission affirmed ALJ Feldman’s holding.
The judge and commission both found that the relevant sections of the Mine Act are silent and/or ambiguous when it comes to applying agent liability to those employed by LLCs, but that this is because the LLC corporate form did not exist in 1977 when the Mine Act was written. Section 110(c) of the Act states, in relevant part:
Whenever a corporate operator violates a mandatory health or safety standard…any director, officer, or agent of such corporation who knowingly authorized, ordered, or carried out such violation…shall be subject to the same civil penalties, fines, and imprisonment that may be imposed upon a person under subsections [110(a) and 110(d)].
Because the language was silent on the status of LLC agents, the FMSHRC applied “Chevron II” analysis, to determine if the agency’s interpretation of the statute was reasonable. Deference is given to MSHA’s interpretation of the Mine Act as long as it is one of the permissible interpretations that the agency could have selected. Although Simola argued that Delaware law – which governed United Taconite’s structure — distinguishes between corporations and LLCs, the Commission did not agree that the term could only be read in a single way. Because the Mine Act does not define “corporate officer” or “corporation,” the court looked at the ordinary meanings of those terms and found that they could be read to include operators of entities which are “corporate in nature.”
The agent of an LLC, like a corporate agent but unlike an agent of a partnership or sole proprietorship, is shielded under normal circumstances from personal liability and, therefore, although LLCs are hybrid entities, they possess the specific corporate quality that Congress addressed when it adopted Section 110(c). The FMSHRC agreed with the Secretary in her argument that agents should be liable for civil penalties, and also stood by the agency’s 2006 interpretative rule that articulated the Secretary’s intention to pursue penalties against LLC agents.
The Commission also reviewed the legislative history of both the 1977 Mine Act (which covered coal and metal/non-metal mines) as well as the 1969 Coal Act, where the issue of personal liability was first addressed in Section 109 of the earlier statute. There, Congress wrote:
The committee expended considerable time in discussing the role of an agent of a corporate operator and the extent to which he should be penalized and punished for his violations of the act…. It was ultimately decided to let the agent stand on his own and be personally responsible for any penalties or punishment meted out to him…. The committee chose to qualify the agent as one who could be penalized and punished for violations, because it did not want to break the chain of responsibility for such violations after penetrating the corporate shield.
A decade later, in writing the 1977 Act, Congress again expressed its intention to hold individual officers responsible for corporate violations along with the corporate entity itself, noting:
Since the basic business judgments which dictate the method of operation of a coal mine are made directly or indirectly by persons at various levels of corporate structure, [civil penalties] are necessary to place the responsibility for compliance with the Act and its regulations, as well as the liability for violations on those who control or supervise the operation of coal mines as well as on those who operate them.
Because of the clear legislative intent to pierce the corporate veil and hold agents responsible who would otherwise be shielded by limited liability, the Commissioners all agreed that it was reasonable to construe Section 110(c) as including LLCs within the scope of the liability scheme. This outcome, they claimed, will provide a “greater incentive” to comply with the Mine Act, whereas Mr. Simola’s position would allow some (agents of LLCs) to hide behind a liability shield while other similarly situated corporate actors would be able to be cited and fined.
This ruling confirms MSHA’s six-year policy approach and constitutes binding precedent unless it is overturned by a U.S. Court of Appeals (no word was available on whether this would be appealed by Simola). Therefore, agents of LLCs — hourly and salaried, persons who supervise or manage a mine, handle safety, serve as foremen or leadmen, direct the work of others, or even just carry out workplace examinations – will now be subject to personal liability, and we can expect MSHA to be more aggressive as the result of this ruling when issuing significant actions to LLCs.
About the author: Adele L. Abrams is an attorney, Certified Mine Safety Professional and trained mediator who is president of the Law Office of Adele L. Abrams P.C. in Beltsville, Md., a seven-attorney firm focusing on safety, health and employment law nationwide. Abrams also provides consultation, safety audits, and training services to MSHA- and OSHA-regulated companies. She is a member of the Maryland, D.C., and Pennsylvania Bars, the U.S. District Courts of Maryland and D.C., the U.S. Court of Appeals, D.C. Circuit and 4th Circuit, and the United States Supreme Court. She is a graduate of the George Washington University’s National Law Center, and earned her Bachelor of Science in Journalism from the University of Maryland, College Park. For more information, contact her at firstname.lastname@example.org or visit the The Law Office of Adele L. Abrams on the Web at www.safety-law.com