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Issue link: https://rock.epubxp.com/i/673147
www.rockproducts.com ROCK products • May 2016 • 59 In a stunning ruling that may impact any company with sub- sidiaries that operates in the mining industry, Judge Kenneth Andrews determined on March 9 that Austin Powder Co. and it's U.S. subsidiary companies function as one "operator" for purposes of the Mine Act, and the subsidiaries are not sepa- rate entities that function independently. The question of whether Austin Powder is an "operator" under the Mine Act came up in 15 dockets with 22 citations and orders that were consolidated at the Federal Mine Safety and Health Review Commission for the purpose of determin- ing whether Austin Powder and its subsidiaries constitute a "unitary operator" for the purposes of the Mine Act. The unitary operator theory was developed under Berwind Natural Resources Corp. case in 1995, used to "flesh out the definition of 'operator' under the Mine Act." Austin Powder argued that the subsidiary company should be held liable for any violation committed by that subsidiary. The Secretary argued that Austin Powder could be held lia- ble as an "operator" under Sec. 3(d) of the Mine Act, based upon the "unitary operator" theory. The unitary operator test established these factors: (1) Interrelation of operations. (2) Common management. (3) Centralized control over mine health and safety. (4) Common ownership. Restructuring of Austin Powder The company and Secretary stipulated that beginning on or about Dec. 21, 2004, Austin Powder made the business deci- sion to restructure the company and spin-off its corporate divisions performing services at mines into separate, legal entities, operating as wholly-owned subsidiaries and orga- nized as limited liability companies pursuant to Delaware state law. Each subsidiary was governed by several contract agreements that covered "capital contributions," employee and equipment leasing agreements, and supply issues. Each subsidiary company obtained its own ATF license. Austin Powder stated that the Secretary is ignoring cor- porate law since the subsidiaries are separate and distinct legal businesses. While there is some interrelationship of operations and some common management, each subsidiary was formed under state laws, Austin Powder argued. The business between Austin Powder and the subsidiary companies "is governed by formal, written, arms-length contracts setting the obligations of each entity, and the LLCs have operational independence." In addition, each subsidiary blasting compa- ny develops its own procedures based on regional geologic differences. The ultimate responsibility for implementing and enforcing safety policies and compliance with health and safety laws rests with the 12 wholly-owned divisional sub- sidiary LLCs, Austin Powder said. Organizational Structure The judge was in agreement with the Secretary that Austin Powder and its subsidiary companies functioned as one opera- tor, once there was a breakdown of the organizational structure. Prior to 2004, each LLC was a division under the corporate umbrella of Austin Powder. Over a three-year period, from 2004-2007, Austin's board of managers reorganized the divisions as corporations under Delaware state law, each as a limited liability corporation. The principle business address remained as Austin Powder's business address in Cleveland. The ATF license for each of the 12 LLCs listed the Cleveland address, and the board of managers retained control over each LLC. In 2006, the board members had Austin enter into an agreement with each LLC. Two of the agreements provided for a contribution of assets in exchange for a 100-percent ownership interest, and the assumption of certain liabili- ties by the LLCs. The 10 remaining agreements provided for employee, services, transportation and supply agreements between Austin Powder and the LLCs. An employee leasing agreement provides that Austin Pow- der leases employees to the LLCs, and the employees are on the Austin Powder payroll. While the LLC can hire or fire any employee, it's Austin Powder that conducts the employee screening and approval process. Judge Andrews stressed that it's Austin Powder that controls the policies governing human resources. Similarly, the LLCs rely on Austin Powder for invoicing, col- lectio, and accounting services. While a single federal tax return is filed for Austin Powder Co., the company provides the information and documentation for each LLC to file state returns. Credit cards are provided by Austin Powder to the LLCs. Judge Andrews stressed in this instance that the han- dling of revenues is controlled by Austin Powder. Judge Rules That Manufacturer, Subsidiary Companies Are "One Operator"