Kentucky Southern Coal Corp. v. Kentucky Energy & Environment Cabinet

Opinion of the Court by Chief Justice MINTON. The Kentucky Energy and Environment Cabinet denied Kentucky Southern Coal Corporation’s application to renew its surface and underground coal mining permit because a bona fide dispute existed over KSCC’s right of entry to 18.1 acres within the permit boundaries. The Court of Appeals affirmed the trial court, which held that the Cabinet properly denied KSCC’s renewal application. We agree that a bona fide property dispute exists, which the Cabinet had no legal authority to adjudicate. So we affirm the Court of Appeals because the Cabinet did not err in denying KSCC’s renewal permit. I. FACTUAL AND PROCEDURAL BACKGROUND. KSCC holds a Surface Coal Mining and Reclamation Permit over 293 acres in Kentucky, including the 18.1-acre tract of land at issue in this case. KSCC’s predecessor in interest, Norton Coal Mining Company, conveyed the surface estate of the 18.1 acres by deed to Walter Crick in 1936. The deed contained the following mineral reservation in favor of Norton: But there is nevertheless reserved and excepted from all lands hereby conveyed all the coal and other minerals and the mining and mineral rights and privileges, the right of subjacent support, [806] and the rights of way for manways, air shafts, drainage shafts, drains, pipe lines, power lines, railroad and [r]ailroad switches as may be convenient or necessary for the working or development or [sic] of the Norton [c]oal [m]ines. Crick later conveyed the surface estate to Harold and Georgia Bandy, and Norton obtained the reserved mineral estate. In December 1984, the original mining permit was issued to Norton for 29.3 acres of area mining, plus additional acreage for topsoil storage, sediment basin, and a coal-haul road, for a total of 33.1 acres of surface disturbance and 250 acres of underground mining. The 18.1-acre tract was included in the permit boundaries but could not be disturbed because it was not bonded. Around this time, a dispute arose in which the Bandys contested Norton’s right under the Crick deed to mine the property. Norton brought suit in the Hopkins Circuit Court to quiet title to its mineral estate.1 In 1985, that court entered a judgment finding that the reservation contained in the Crick deed was effective as to the 18.1 acres. The court declared Norton “the owner of the coal and mining rights ... in and underlying the tract of land, the surface of which is owned by” the Bandys. The judgment also granted Norton a 15-year surface lease for the Bandy property, effective January 23, 1985. Norton paid the Bandys $27,500 for the lease, which provided Norton “the right to strip mine the property and perform any mining or associated operations thereon not prohibited by this Judgment or state or federal law....” At the end of the 15-year lease, Norton was to return the leasehold to the Bandys reclaimed in accordance with state and federal regulations. In May 1990, five years after entry of the judgment, KSCC acquired Norton’s rights in the lease over the 18.1-acre tract. Norton transferred the mining permit to KSCC; and KSCC placed the 18.1 acres under a performance bond, ensuring its reclamation.2 KSCC’s current permit includes 293 acres, of which 43 acres are surface-disturbance acres and 250 acres overlie underground operations.3 The 18.1-acre tract is a means of egress and ingress to the underground works for KSCC’s mining permit. It also includes around 17 acres of area mining and the highwall4 for the faceup to the underground mine. There is disagreement about whether the tract has been subject to surface mining operations. In 1995, the Bandys conveyed the disputed property to Jeff and Marion Reynolds. And, in 2004, the Reynoldses conveyed the 18.1-acre tract to the current owner, Cathy Gunn.5 The surface-mining lease on the property expired at the end of the original 15-year term in January 2000 and has not been renewed. Around late 1999 or early 2000, KSCC filed an application with the Cabinet to renew its Surface Coal Mining and Reclamation Permit for another five years. The permit is a combination underground and surface mining permit. While the applica [807] tion was pending, the Cabinet’s Division of Mine Permits received a protest letter from the Reynoldses claiming the 1985 surface lease between the Bandys and Norton Coal had expired and that a renewal lease had not been negotiated. KSCC did not present any further documentation of a new lease agreement and did not claim a right to enter and mine without the Reynoldses’ consent. So the Division denied KSCC’s mining license renewal application because KSCC did not prove that it had a legal right of entry and because KSCC failed diligently to pursue issuance of the renewal. KSCC then filed an amended petition, arguing for the first time that the 15-year lease applied only to strip mining and that its right of entry was based upon the terms of its broad form mineral deed and did not require consent of the surface owners. The Division again concluded that the permit renewal should be denied because there was a bona fide dispute about KSCC’s right of entry to the surface. The dispute was submitted to the Cabinet’s hearing officer, who concluded by summary disposition that the Division properly denied KSCC’s permit renewal application because a bona fide dispute existed. The hearing officer concluded that the Hopkins Circuit Court judgment ruled that Norton owned the minerals underlying the tract of land and “went a step further and also made a determination, based upon the agreement of the parties, as to the manner in which Norton, and later, [KSCC], would have a right of entry to the surface.” The Secretary of the Cabinet issued a final order adopting the hearing officer’s recommendation and affirming the Division’s denial of the permit renewal. KSCC sought review of the Secretary’s order in the Franklin Circuit Court, which affirmed the Cabinet’s decision. That court found that the expiration of the surface lease adjudicated by the Hopkins Circuit Court creates a bona fide dispute over the rights of KSCC to mine the coal on the 18.1-acre tract. The Court of Appeals also affirmed the Cabinet’s decision. We granted discretionary review of the case, and we now affirm. II. ANALYSIS. We use the substantial evidence' standard of review for an administrative agency’s findings of facts.6 “[I]f there is substantial evidence in the record to support an agency’s findings, the findings will be upheld, even though there may be conflicting evidence in the record.”7 “If the findings of fact are supported by substantial evidence of probative value, then they must be accepted as binding[;] and it must then be determined whether or not the administrative agency has applied the correct rule of law to the facts so found.”8 “When the facts are in dispute and the findings of fact by an administrative board are supported by substantial evidence, and the board [has] applied the correct rule of law to the facts so found, its final order must be affirmed.”9 A. A Bona Fide Dispute Exists Regarding KSCC’s Right of Entry to the 18.1-Acre Tract. Kentucky Revised Statutes (KRS) 350.060(13) provides that “[a]ny valid per [808] mit issued pursuant to this chapter shall carry with it the right of successive renewal upon expiration with respect to areas within the boundaries of the existing permit.” The Cabinet must issue the permit renewal unless, among other requirements, “[t]he terms and conditions of the existing permit are not being satisfactorily met.”10 A mining permit will not be issued if the applicant cannot show that it has a legal right to enter and mine the land within the permit area.11 If an applicant no longer has a legal right of entry onto land within a permit, then the terms and conditions of the existing permit are not met; and the Cabinet cannot issue the permit renewal.12 When a bona fide dispute exists regarding an applicant’s legal right of entry, the Cabinet cannot grant a permit renewal. The property dispute regarding the applicant’s right of entry must be adjudicated in the court of general jurisdiction in which the real estate is located, not in administrative proceedings held by the Cabinet.13 The Cabinet is prohibited from adjudicating property rights.14 And while the existence of pending civil litigation concerning an applicant’s right of entry has bearing on whether a bona fide property dispute exists,15 pending litigation is not necessary for the Cabinet to determine that a bona fide dispute exists. The question in this case is whether a bona fide dispute exists regarding KSCC’s right of entry to the 18.1 acres, such that the Cabinet properly denied KSCC’s permit renewal application. KSCC claims that the permit it is seeking to renew concerns deep mining only, not surface mining; and the surface disturbance allowance on the 18.1 acres is for the surface disturbance associated with deep mining, including ingress and egress to the underground mine. Based on this premise, KSCC argues that it has a prima facia right of entry to mine its mineral estate because it owns the mineral rights for deep mining under the Crick deed.16 Alternatively, KSCC argues that because it owns the mineral rights, it also holds the right to extract the minerals by both surface mining and underground mining. Regardless of whether the Crick deed granted the right of entry for deep mining or surface mining, the Hopkins Circuit Court judgment created a bona fide dispute regarding KSCC’s right to enter the 18.1-acre tract. The judgment first declares Norton the owner of the coal and [809] mining rights in and underlying the tract of land. Upon agreement of Norton and the Bandys, the judgment then delineates the terms of a 15-year surface lease. The lease terms are not clearly limited to surface mining operations but could reasonably be interpreted to affect Norton’s right of entry to its underground mining operation. The lease granted Norton the right to “strip mine the property and perform any mining or associated operation thereon ... subject to the terms and conditions herein stated.”17 Norton agreed to pay the Bandys $27,500 in exchange for the Bandys’ release of any future claims arising out of Norton’s use of the leased land, including Norton’s underground mining operations. The Bandys also agreed not to protest or object to Norton’s surface permit on the 18.1 acres and Norton’s underground coal mining permit “relating to the underground coal mine to be constructed on the Bandys’ leasehold.” And Norton was to receive immediate access to the leased area, which suggests that Norton did not previously have unrestricted access to the land. The surface lease also required Norton to conduct its underground mining operations in certain ways. Norton agreed not to mine coal beneath the Bandy residences and a cemetery and agreed to leave sufficient pillars in place to protect the Bandy residences from subsidence.18 And, at the end of the 15-year term, Norton was to return the leasehold to the Bandys reclaimed. The record shows that a 40-foot-deep, water-filled pit that provides access to the underground mining operation is currently located on the property.19 Arguably, the surface lease would require the entire leasehold, including the surface disturbance associated with access to the underground mine, to be reclaimed at the end of the leasehold. Whatever right of entry KSCC may have had under the Crick deed, the. Hopkins Circuit Court judgment became the law of the case, binding on Norton’s successors. The 15-year surface lease provided for in the judgment creates a bona fide dispute about KSCC’s right of entry after expiration of the surface lease. The Cabinet was not authorized to adjudicate this property dispute. It is within the Hopkins Circuit Court’s jurisdiction to determine the rights granted by the Crick deed and the effect the judgment had on those rights.20 Furthermore, despite KSCC’s assertions to the contrary, KSCC is seeking to renew a permit that allows surface mining on the 18.1-acre tract. KSCC submitted an application to the Cabinet to renew its mining permit as it existed.21 The existing [810] permit granted both underground mining and area mining on the 18.1-acre tract.22 Substantial evidence in the record supports the hearing officer’s finding that of the 18.1 acres, 17.2 acres were designated for area mining.23 But, according to the lease provided for in the Hopkins Circuit Court judgment, the 15-year lease for surface mining expired in 2000. So KSCC is seeking to renew a permit that would allow surface mining on the 18.1 acres when the surface lease that granted the right to strip mine has expired.24 To the extent that KSCC claims it has a right to surface mine the land by virtue of the Crick deed, the final judgment places that issue in dispute. KSCC has not shown a right of entry necessary for the permit, which includes area mining on the 18.1-acre tract. KSCC complains that the Cabinet adjudicated its property rights by finding ambiguity in the Hopkins Circuit Court judgment and denying that the company has a prima facie right of entry based on its ownership of the mineral estate. But the opposite is true. The Cabinet determined, and this Court agrees, that it is uncertain whether KSCC has a legal right of entry onto the land. Without having a clear right of entry, the Cabinet was prohibited from issuing a permit renewal because the terms and conditions of the existing permit were not being satisfactorily met. It is KSCC’s obligation, as the permit applicant, to resolve the property dispute issue before applying for a permit renewal. B. It is Irrelevant that the New Surface Owner has not Intervened in the Administrative Proceedings. When KSCC first sought to renew its mining permit, the Reynoldses owned the disputed 18.1 acres. They filed a protest letter with the Cabinet and intervened in the administrative proceedings. But, in 2004, the Reynoldses conveyed the 18.1-acre tract to the current owner, Cathy Gunn. Gunn did not intervene in the administrative proceedings and has not raised a property dispute. So KSCC argues that there is no bona fide property dispute because the current owner has not objected to the company’s permit renewal application. We disagree. The Reynoldses’ current absence from the proceedings and Gunn’s failure to intervene in the permit renewal process are irrelevant. The Reynoldses were not required to intervene in the administrative [811] proceedings.25 By filing the dispute letter and choosing to intervene in the proceedings, the Reynoldses brought the property dispute to the Cabinet’s attention. The Cabinet cannot issue a permit renewal if the terms and conditions of the existing permit are not being satisfactorily met.26 So once the Cabinet was aware of the bona fide- dispute over KSCC’s legal right of entry to the 18.1-acre tract, it was not free to issue the permit. And nothing in the record suggests that Gunn has signed a waiver or executed a lease or deed in favor of KSCC. So the fact that the Reynoldses sold the property and Gunn has not chosen to intervene does not change the dispute regarding KSCC’s right of entry to the property. III. CONCLUSION. The question presented to the Court in this case is simply whether a bona fide dispute exists regarding KSCC’s right to enter the disputed 18.1 acres. We find that a bona fide dispute exists because (1) the Hopkins Circuit Court judgment could reasonably be interpreted to affect KSCC’s right of entry to access its underground mine, and (2) KSCC is seeking to renew a permit that allows surface mining on the 18.1 acres when the surface lease established by the Hopkins Circuit Court judgment has expired. Substantial evidence in the record supports the Cabinet’s findings, and the Cabinet applied the correct rule of law to those facts. Accordingly, we affirm the decision of the Court of Appeals, which upheld the Cabinet’s final order. MINTON, C.J.; ABRAMSON, CUNNINGHAM, NOBLE, SCOTT, and VENTERS, JJ., sitting. ABRAMSON, CUNNINGHAM, and NOBLE, concur. SCOTT, J., dissents by separate opinion in which VENTERS, J., joins. KELLER, J., not sitting. Footnotes [1] Norton Coal Corporation v. Bandy, Civil Action No. 84-CI-00339. [2] After KSCC acquired the permit, additional surface disturbance was added, minor revisions were issued, and a second transfer of the permit was made to KSCC in May 2000. [3] KSCC’s permit has now been amended to suspend mining operations. [4] 405 Kentucky Administrative Regulations (KAR) 16:001(44) defines highwall as "the face of exposed overburden and coal in an open cut of a surface mining activity or for entry to underground mining activities.” [5] Gunn is not a party to any action involving the property and is not before the Court in this case. [6] Kentucky Unemployment Ins. Comm’n v. Landmark Community Newspapers of Kentucky, Inc., 91 S.W.3d 575, 578 (Ky.2002). [7] Kentucky Comm’n on Human Rights v. Fraser, 625 S.W.2d 852, 856 (Ky.1981) (citations omitted). [8] Landmark Community Newspapers, 91 S.W.3d at 578, quoting Southern Bell Tel. & Tel. Co. v. Kentucky Unemployment Ins. Comm’n, 437 S.W.2d 775, 778 (Ky.1969). [9] Brown Hotel Co. v. Edwards, 365 S.W.2d 299, 302 (Ky.1962). [10] KRS 350.060(13)(a). [11] See 405 KAR 8:030 § 4(1) and (2); KRS 350.060(3)(d) (A company "desiring a permit to engage in surface coal mining operations shall file an application,” stating the "source of the applicant’s legal right to mine the coal on the land affected by the permitf.]”). [12] See also KRS 350.085(1) ("No application for a permit and no operation shall be approved or allowed by the [CJabinet if ... the requirements of this chapter or administrative regulations will not be observed....”). [13] KRS 452.400. [14] Dep. for Nat. Res. and Envt'l Protection v. Stearns Coal & Lumber Co., 563 S.W.2d 471, 473 (Ky.1978). [15] See 405 KAR 8:030 § 4(1) ("Each application shall contain a description of the documents upon which the applicant bases his or her legal right to enter and begin surface mining activities in the permit area and whether that right is the subject of pending litigation.”). [16] KSCC argues that under Kentucky constitutional, statutory, and common law, the mineral estate is dominant over the surface estate; and the surface owner holds the land in trust for the owner of the mineral estate. The company also argues that the Crick deed was a broad-form deed that contained references to strip mining the property. [17] Emphasis added. [18] The dissent explains in some detail that the surface mining lease was necessary because, otherwise, KRS 381.940 would not allow surface mining under the Crick deed. But this does not alter the fact that the lease also addressed Norton’s deep mining operations. [19] The dissent concurs with the fact that the pit provided deep mine access. [20] The dissent may very well be correct that the Hopkins Circuit Court judgment, and the 15-year lease created in it, does not hinder KSCC’s right of access to its deep mining operations. But that is not the real question before this Court. Rather, the issue before us is whether the Cabinet correctly determined that a bona fide dispute exists such that it could not issue a permit renewal. We hold simply that the Hopkins Circuit Court, not the Cabinet, has jurisdiction to determine whether KSCC has a right of access to its underground mining operations. [21] See 405 KAR 8:010 § 21(4) ("An application for renewal shall not include any proposed revisions to the permit. Revisions shall be made by separate application and shall be [810] subject to the requirements of Section 20 of this administrative regulation.”). [22] Although not defined in the KAR, area mining is a type of surface mining. "Area mining is carried on where the terrain is flat or gently rolling. In this process, coal is dug out in a series of trenches parallel to each other. As each trench is completed, the earth removed from the neighboring cut is dumped into the previous cut. As the backfill settles, the area takes on a corrugated appearance!;] and since there is no available earth to fill the last trench, there remains a high wall with a ditch in front of it.” The Supreme Court Rejects Constitutional Challenges to the Surface Mining Control and Reclamation Act Of 1977 Hodel v. Virginia Surface Mining And Reclamation Association Hodel v. Indiana, 48 Brook. L.Rev. 137, 175 (Anthony Pye Fall 1981). [23] The permit granted in 1984 stated, "[t]he Division of Permits hereby grants the above-named operator a permit to engage in surface coal mining and reclamation operations.” And various mining maps prepared in 1994 show area mining on a portion of the 18.1-acre tract. Contrary to the dissent’s claim, we are not conflating the highwall necessary for accessing the deep mining operations with strip mining. [24] And we note that nothing in the record suggests that the current owner of the property has signed a waiver or executed a lease or deed in favor of KSCC. [25] 405 KAR 7:091 § 10(1) ("A person may petition in writing for leave to intervene at any stage of a proceeding.... ”). [26] KRS 350.060(13)(a).