Rock Law

Brooke Wisdom

September 1, 2010

Good Morning from Congress

While you were sleeping, life got a whole lot more complicated.

By Avi Meyerstein

Early one recent morning, while you were sleeping, Congress was wide awake, putting into law increased reporting requirements and exposure for large mine operators and those with large parent companies. On June 25, at 5:07 a.m. to be exact, House and Senate conferees emerged from an all-nighter with an overhaul of the U.S. financial regulatory system. Tucked inside, were a series of provisions imposing new requirements not on banks, but on mines. The new requirements became law on July 21, 2010.

The new law’s mining provisions, which start on page 2,293 of the congressional conference report, apply to any “issuer” (a company that issues securities) that (1) is required to submit reports to the Securities and Exchange Commission (SEC) under Sections 13(a) or 15(d) of the Securities and Exchange Act of 1934, and (2) is a mine operator or owns one. For the first time, the law will require that such firms report in their SEC disclosures a number of detailed items relating to their mining and health and safety compliance records.

First, companies covered by the new provisions have to add to their SEC reports for the reporting period information on their total number of: Significant and Substantial (S&S) citations, Mine Act Section 104(b) withdrawal orders (for failure to abate violations) issued, unwarrantable failure citations and orders, flagrant violations, imminent danger orders, and mining-related fatalities, as well as the total dollar value of proposed MSHA assessments. SEC filings also have to list each mine that has received a written notice from MSHA that it has a pattern of S&S violations or that it has the potential to have such a pattern. In addition, companies now have to report any pending legal action before the Federal Mine Safety and Health Review Commission.

Second, following enactment of the financial reform bill, issuers of securities that are mine operators or own mine operators will have to file a current report with the SEC (probably Form 8-K). The report must disclose receipt of a Mine Act Section 107(a) imminent danger order, as well as receipt of any notice from MSHA of a pattern of S&S violations or the potential to have such a pattern. The SEC will treat any failure to follow these new reporting requirements as a violation of the Securities and Exchange Act and SEC regulations. The new legislation also empowers the SEC to issue any additional regulations it deems necessary to carry out the new provisions.

So, what does all of this mean for you? First, it means much greater corporate and public scrutiny of a mine operator’s MSHA dealings. Today, corporate and parent company officials, not to mention investors, likely know very little of an operator’s routine dealings with MSHA. These stakeholders don’t follow every MSHA final penalty, let alone every proposed one. They don’t hear about every S&S citation or withdrawal order. Now, they will.

One result is that the successful mining or safety manager of the future will not only have to focus on increasing safety compliance and reducing violations, but also on internal education and outreach. Investors, and even many corporate higher-ups, are sure to be unfamiliar with the ins-and-outs of MSHA enforcement and litigation. Many may know only what they see and read in the media or hear from political leaders following a mining disaster. They lack the context to understand how common a citation or S&S violation is in the industry or in your company. They won’t have a sense of the number of citations in relation to hours worked, material produced or, most importantly, inspection intensity. They may not understand the litigation process that ultimately finds many proposed penalties and citations unwarranted. They will only hear the negatives; they won’t know, unless you tell them, about positive trends or improvements in health and safety, as well as compliance, in your company.

In a sense, the new reporting requirements will highlight MSHA matters out of proportion to other issues. In the past, investors only saw reports on a small number of legal proceedings — those with potential liability so great that they were material to the company’s financial statements. That is still the rule generally — except for MSHA cases. Now, your citation and proposed assessment record from MSHA will get equal exposure to lawsuits worth tens or hundreds of millions of dollars of potential liability. If you want the stakeholders in your company to understand the proper context and impact of these MSHA matters relative to other litigation, it may well be up to you to educate them.

Next, just as the provisions may make your investors and corporate higher-ups focus for the first time on mine safety and compliance at a granular level, the new law will also make you focus — probably for the first time — on dealing with a new regulator and new source of potential liability. At a minimum, your incentive has at least doubled for having record-keeping and reporting practices and systems that are well-planned and well-implemented. It has long been a very good idea to put in place the kind of sophisticated citation and safety tracking systems that leading companies have begun to adopt. Now, such systems are essential, as the new law requires accurate reporting of these events, and two separate watchdog agencies will be scrutinizing mine operators’ compliance.

In fact, the incentives to improve compliance and record-keeping have more than doubled because the new provisions ratchet up the negative effects of having any kind of safety and health compliance issues. The law now requires reports not only of true MSHA violations, but even of preliminary allegations by MSHA (in the form of citations, orders, and proposed assessments, which a judge may later strike down) and notices of potential patterns of violations. As a result, the law further increases the incentive to expand and improve internal, company-wide and mine-specific compliance, training, oversight, and auditing.

Finally, the bill did not become law in a vacuum. Around the same time, Congress began work on the “Robert C. Byrd Miner Safety and Health Act of 2010.” The House Committee on Education and Labor has passed its version of this new law, and a companion bill has been introduced in the Senate. Between these two versions, this major legislation proposes more frequent MSHA inspections, a much lower threshold for classifying a violation as S&S (requiring only that any injury be reasonably likely, not just serious ones), increased criminal penalties, expanded whistleblower protections and incentives, and greater MSHA investigative authority. Any one of these proposed changes could lead to more numerous and more serious citations and proposed assessments, which would now be reported to company leaders, the SEC, and investors.

Lord Kelvin reportedly once said, “If you can not measure it, you can not improve it.” The impetus behind the mine reporting provisions in the financial reform bill apparently was to create pressure from investors and corporate leaders to improve health and safety compliance. Indeed, when the late Senator Robert Byrd (D-W.Va.) introduced these provisions to become part of the financial reform bill, he said it would “ensure that we can all make a reasonably informed assessment of whether companies are getting too close to crossing the line on worker safety and health.” He noted that investors, as well as “the many well-intentioned corporate leaders,” should “know if a company is jeopardizing its workforce in order to maximize its profits” or jeopardizing its profits by cutting corners on safety. Only time will tell if this approach positively impacts safety. In the meantime, however, large mine operators and the public companies that own them need to adjust to a new and more complicated regulatory and reporting world, in which they are being encouraged to put an even finer point on their safety and health compliance programs and record-keeping. AM

Avi Meyerstein is an associate at the Washington, D.C. office of Patton Boggs LLP. He assists clients with public policy issues and matters involving complex civil and commercial litigation. He may be reached via telephone at 202-457-6623 or via e-mail at

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