Mine Safety and Health Blog

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Justice Served?

Posted by Ellen Smith on July 16, 2013

An interesting quirk in the tax code requires that MSHA civil penalties, which are deemed “final,” are to be reported to the IRS as income if the penalties are not paid. Failure to report, and failure to pay tax on the benefit of having penalties not paid, can result in an action by the IRS.

This is an important part of the tax code, and an important part of the enforcement scheme of the 1977 Mine Act. Equally important, however, is the fact that we cannot have laws and regulations in this country where some operators play by the rules, but their competitors don’t.

Case in point is the latest guilty plea involving Brandy Horvath and The New West Virginia Mining Co. (See story in this issue under “Criminal Proceedings”).

After looking at all court documents, and asking questions of the U.S. Attorney, it appears that the controller and supporting actors in the IRS case against The New West Virginia Mining Co., actually owe more in back taxes than the federal investigators found when they brought this case involving fake controllers of the mine, drug deals and tax evasion. What they missed is more than $1 million in unpaid penalties owed to MSHA.

While MSHA made attempts to enforce compliance at the mine through warning letters and eventually placing the mine on POV status, there in fact was no one actually enforcing MSHA’s penalty scheme as envisioned under the 1977 Mine Act. While two miners became permanently disabled, Brandy Horvath, or her boyfriend James Trent, were allowed to keep operating The New West Virginia Mining Co. while MSHA delinquent penalties continued to escalate.

It’s not that Horvath hasn’t been on the radar screen. In 2011, when Mine Safety and Health News did a one day “snapshot” of delinquent penalties, Horvath’s mine had delinquent penalties of $177,627, of which $172,000 had been forwarded to Treasury for collection.

At the time of the first permanently disabling accident in The New WV Mine, on July 17, 2010, the company had $158,234 in delinquent MSHA penalties. At the time of the second permanently disabling accident on March 2, 2011, the mine was up to $177,846 in delinquent MSHA penalties.

As of today’s date, Horvath and the New West Virginia Mine civil penalty delinquency tally has reached $1,369,224.
The person identified by the IRS as Horvath’s boyfriend, James Trent, is “permit blocked” by the state of West Virginia, and also owes MSHA $68,730.92 in delinquent penalties from when he was controller of Century Energy Corp., Coal America Inc., and Atlantic Leaseco LLC. Steven Rocky Justus, the mine’s superintendent, was also implicated in this tangled web by the IRS, and found guilty in this scheme of defrauding the government. He owes MSHA $1,331.81 in delinquent penalties from when he controlled Double A Mining in 2004.

While Horvath and her associates are, or may end up in jail for tax evasion, this is just one of many cases that fell through the proverbial crack at multiple levels.

We have outlined many instances of companies – large and small – who manage to run safe mines and pay their MSHA penalties on time (18 MSHN 169; “Delinquent Penalties Are A Chronic Problem For MSHA and Treasury”). It is simply not fair that some companies obey the law, run safely, and pay penalties when warranted, while others can run up hundreds of thousands of dollars – or millions as in this case – in delinquent penalties, with little to no consequences.

As always, a little history is helpful. This very issue is why changes were made in the 1969 Coal Mine Act, and then passed as the 1977 Mine Act.

In a May 16, 1977 report, the Senate stated that “Mine operators still find it cheaper to pay minimal civil penalties than to make the capital investments necessary to adequately abate unsafe or unhealthy conditions, and there is still no means by which the government can bring habitual and chronic violators of the law into compliance.” The difference today is that we are seeing some operators simply refusing to pay any penalties at all, or paying in a piece-meal fashion.

The Senate also noted in 1977 that enforcement sanctions under the current laws were “insufficient to deal with chronic violators,” and that “all too often the operator finds it cheaper to pay the penalties than to strive for a violation-free mine.”

There are now over 100 violators with delinquent penalties over $100,000 from when we reported March 2013 numbers (see: 20 MSHN 189), and in the case of Horvath – her company was well past $1 million in delinquent fines. It can certainly be argued that today, like in 1977 under MESA, the Labor Dept. and Treasury have been seriously deficient in enforcement and administrative responsibilities under this statute.

When looking at the flaws in the 1969 Act, the Senate report said “that to effectively induce compliance, the penalty must be paid by the operator in reasonably close time proximity to the occurrence of the underlying violation.” The Senate also noted that “District Courts are still reluctant to schedule trials on these issues, and the Department of Justice has been reluctant to pursue such cases in the courts, the matters generally languish at that stage, and the penalties go uncollected.”

The fact is, while it is good to see Horvath and the other bad actors in this case taken care of, it’s too late. The bottom line is that if anyone at MSHA, the Solicitor’s Office and the Justice Dept. had taken the MSHA penalty scheme seriously – the goal of which is to prevent accidents through rigorous enforcement – then at least two miners would still have all of their fingers, and Horvath would not have been in business – at least the mining business – for very long.

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