Federal Mine Safety and Health Review Commission

Appearances: Pamela Mucklow, Esq., U.S. Department of Labor, Office of the Solicitor, Denver, Colorado for Petitioner

This case is before me upon a petition for civil penalty filed by the Secretary of Labor pursuant to section 105 of the Federal Mine Safety and Health Act of 1977, 30 U.S.C. §§ 815 (the Mine Act). The petition charges Respondent, Thueson Construction Co., and/or Thueson Construction, Inc.,

with nineteen section 104(a) violations of mandatory safety standards, eleven of which involved guarding violations under 30 C.F.R. § 56.14107(a), eight of which were designated as significant and substantial,

and twelve of which were designated as high negligence, for a total proposed civil penalty of $91,309.

The parties stipulated to all material jurisdictional facts. The parties further stipulated that in all 19 citations, Respondent violated the standards cited, as written; that the gravity and negligence in each citation was correctly assessed; and that Respondent exercised good faith in terminating all citations in a timely manner. See Jt. Ex. 1, Stip. 1-28; Tr. 8-10.

Respondent challenges the amount of the proposed penalties and claims that it is unable to pay such penalties and they will adversely affect Respondent’s ability to remain in business.

The Secretary was unsuccessful in negotiating any agreement with Respondent as to what it could pay. The Secretary advised that MSHA does not retain a certified accountant or sophisticated technical expert to advise on a respondent’s ability to pay a proposed civil penalty. Tr. 51, 61-62.

Accordingly, an evidentiary hearing was held in Boise, Idaho on June 19, 2012. The parties introduced documentary evidence

and Respondent presented narrative testimony from its pro se owner, Lance Thueson, and from its Certified Public Accountant (CPA), Buckner Harris.

The issues before me are whether the proposed penalty assessment of $91,309 would adversely affect Thueson’s ability to continue in business, and the amount of an appropriate penalty assessment. Under well-settled Commission precedent, it is presumed that a proposed penalty assessment will not adversely affect an operator’s ability to continue in business. Broken Hill Mining Co., 19 FMSHRC 673, 677–78 (Apr. 1997). Consequently, the burden is on Thueson to prove that the proposed penalty assessment will adversely affect its ability to continue in business. Id.; see also Tr. at 13-14.

For the reasons that follow, I conclude that Thueson has not satisfied its burden of proving that imposition of the total proposed civil penalty would adversely affect its ability to continue in business. Applying the remaining civil penalty criteria under section 110(i) of the Mine Act, however, I find that a total proposed penalty of $25,028 is appropriate. On the entire record, including my observation of the demeanor of the witnesses,

and after considering the post-hearing briefs,

I make the following:

Lance Thueson holds 100% ownership interest in several interrelated, integrated and affiliated businesses treated as combined entities for accounting purposes. Tr. 38. Thueson Construction, Inc.’s affiliates all operate out of Nampa, Idaho, a community property state, and include Pipe, Inc., Americrete, Inc., Americrete Land Holding, River Rock Sand and Gravel, LLC, Triple Crown Development, Triple Crown Leasing, and Lance Thueson, LLC, all 100% owned by Lance Thueson and/or his wife. Tr. 22-27, 106.

Thueson Construction, Inc. is a construction contractor specializing in excavation primarily for residential developers and governmental entities. R. Ex. 11, note 1. Pipe, Inc. is a contractor specializing in underground water and sewer excavation, primarily for residential developers and governmental entities. Id.

River Rock Sand and Gravel, LLC, owns several gravel pits in Ada and Canyon counties, Idaho, where gravel is extracted and crushed to produce various types of sand and gravel mixtures that are sold primarily to local real estate developers, contractors and residential and commercial builders. Id.

Americrete Ready Mix Concrete, Inc., d/b/a G&B Ready Mix Concrete (Americrete), specializes in manufacturing and selling concrete primarily to residential and commercial builders. Id.

Triple Crown Development, LLC, develops and sells land for residential subdivisions. Id.

Triple Crown Leasing, LLC, owns and leases commercial real estate. Id.

Lance Thueson, LLC, also develops and sells land for residential subdivisions. Id.

Americrete Land Holding, LLC, leases land. Id.

The Secretary has not alleged that any of these legal entities operate as a unitary operator, joint operator, alter ego, and/or successor operator with Respondent.

Nor has the Secretary attempted to pierce the corporate veil of Thueson Construction, Inc. and attach individual liability to Lance Thueson and/or his wife.

Respondent, Thueson Construction, Inc., is a going concern that bids site work for various construction projects. Tr. 34, 96.

It currently has about 15 employees, but when the instant citations were written at Portable Crusher 1 Mine on October 14, 2009, it employed only three miners. Tr. 34-36. The mine produces native sand and gravel, which is separated and crushed into different sizes and washed and sold to some of Respondent’s affiliated companies, including Pipe, Inc. and Americrete, Inc. Income generated by the mine is reported as income to Thueson Construction. Tr. 37.

The mine received a Certificate of Honor from the Holmes Safety Association, signed by the former Assistant Secretary of Labor for Mine Safety and Health, for working 50,553 work hours from July 1, 2001 through September 30, 2008 in the metal/non-metal industry without incurring a lost workday injury. Tr. 17; R. Ex. 2. Prior to the instant inspection, from December 12, 2001 until March 24, 2009, Thueson Construction received 46 section 104(a) citations, 9 of which were S&S, and one section 104(g)(1) S&S citation. All 47 citations over this eight-year period were paid; one for $1,200, and the remaining 46 citations for $360 or significantly less.

During the instant inspection, proposed fines increased exponentially.

Thueson contacted a national law firm in Washington, D.C. to represent Respondent in this matter, but could not afford the $10,000 retainer to initiate representation. Tr. 16; R. Ex. Thereafter, consultant Kim Redding represented Respondent during initial conference calls with the undersigned, but Respondent could not afford his representation either. Tr. 61, 63. In several pre-hearing conference calls with the parties, the undersigned requested that Thueson Construction provide audited financial records at the hearing , but Thueson explained, as further confirmed by testimony from Thueson and Harris below, that Thueson could not afford to provide audited financial statements.

R. Exs. 3, 4, and 5 represent unsigned joint individual income tax returns filed by Thueson and his wife, M. Janel Thueson, for tax years 2011, 2010, and 2009, respectively, including, inter alia, Schedule C profit or loss statements from Triple Crown Development, LLC (engaged in construction and development) and River Sand and Gravel, LLC (engaged in rock crushing/sales), both of which list the same business address as Thueson Construction, Inc. Tr. 17-18. R. Exs. 7, 6, and 8, respectively, represent 2011, 2010, and 2009 unsigned income tax returns for S corporation Thueson Construction, Inc., the Respondent herein. Tr. 19-21.

R. Ex. 9, 10, and 11, respectively, represent Thueson Construction, Inc. and Affiliates’ combined financial statements and accountants review report for the years ended December 31, 2009 and 2008, December 31, 2010 and 2009, and December 31, 2011 and 2010. Tr. 21-22. The Independent Accountants’ Review Reports were prepared by B. A. Harris and Associates, P.A., a CPA firm in Boise, Idaho, which is owned by sole shareholder Buckner Harris, witness for Respondent. Tr. 98-99.

Those review reports state, inter alia, that review was made of the accompanying combined balance sheets of Thueson Construction, Inc. and affiliates and the related combined statements of operations, changes in stockholder’s equity, and cash flows.

The 2011 report, for example, provides as follows:

. . . . A review is substantially less than an audit, the objective of which is the expression of an opinion regarding the combined financial statements as a whole. Accordingly, we do not express such an opinion.

Management is responsible for the preparation and fair presentation of the combined financial statements in accordance with principles generally accepted in the United States of America for designing, implementing and maintaining internal control relative to the preparation and fair presentation of the financial statements.

Our responsibility is to conduct the review in accordance with Statements on Standards or Accounting and Review Services issued by the American Institute of Certified Public Accountants. Those standards require us to perform procedures to obtain limited assurance that there are no material modifications that should be made to the combined financial statements. We believe that the results of our procedures provide a reasonable basis for our report . . . .

For the year ending December 31, 2009, Thueson Construction, Inc. had a net loss of $1,391,335. R. Ex. 9, Schedule 8. For the year ending December 31, 2010, Thueson Construction, Inc. had a loss of $846,208. R. Ex. 10, Schedule 8. For the year ending December 31, 2011, Thueson Construction, Inc. had a net loss of $16,394. R. Ex. 11, Schedule 8.

Lance Thueson testified that Thueson’s business outlook was “slowly” getting better, but “[i]t’s not looking very good,” and “it’s just a matter of trying to keep our doors open at this point.” Tr. 32-33, 86. “We’ve sustained some huge losses and our working capital is upside down. I owe property taxes for the last three years . . they are getting ready to have a sheriff’s sale. . .” on properties held by Triple Crown and Americrete Land Holding. Tr. 33. Thueson further testified that he has maxed out a $983,000 line of credit with Zion’s bank, and that line of credit has not been renewed. Tr. 53-55.

Thueson testified, “I’m not sure what my future brings until I know that the bank is going to renew my line [of credit]. I could be out of business tomorrow. . . .” Tr. 86.

Thueson testified that he pays Zion’s Bank $54,000 a month from Americrete Ready Mix, and a debt restructuring agreement has been negotiated with regard to 5 of the 10 million owed Zion’s Bank. Tr. 92-93.

Thueson further testified, “I owe another bank [Wells Fargo] $2.8 million that we have been selling equipment to, to try to - - it’s in foreclosure too.” Tr. 56-57, 91.

Thueson testified that he has not taken any wages from Thueson Construction since 2008, and his covenant with Zion’s Bank precludes withdrawal of more than $60,000 annually, which he may elect to take from Americrete, d/b/a G&B Ready Mix. Tr. 65-67. In 2011, however, Thueson and his wife reported a $166,258 distribution from Thueson Construction. Tr. 69; R. Ex. 7, 2011 Tax return for an S Corporation, page 6, Sch. K-1, line 12.

R. Ex. 4, page 3, Schedule A, lines 16-19 of the joint individual income tax return filed by Thueson and his wife for 2010, show a gift to charity of $14,148 in 2010 and a charitable contribution carryover from a prior year of $49,324 for a total amount of disallowed charitable contributions of $63,472.

Thueson testified that the contributions represent periodic tithing to his church. Tr. 66, 69. In 2011, Thueson gave $12,721 to his church, increasing the disallowed charitable contributions to $76,193. R. Ex. 3, page 3, Schedule A, lines 16-19.

R. Ex. 3, joint individual tax return for 2011, page 9, Schedule E (Supplemental Income and Loss from real estate), shows that after deduction for expenses, the Thuesons had rental income of $15,737 from property A located at Kings Road, Nampa, ID, 83686, and rental income of $168,342 from property B located in Canyon County, ID, 83686. Total rental income was $184,179. See Tr. 74-76.

Triple Crown Development, LLC, which Thueson testified owned the land on which the properties were located, did not report any rental income. Tr. 76; R. Ex. 3, joint individual tax return for 2011, page 5, Schedule C (Profit or Loss from Business (sole proprietorship), Triple Crown Development, LLC; but see Schedule E (Supplemental Income and Loss from real estate), showing rental for two properties, which Harris attributed to Triple Crown Leasing. Tr. 108-09; see note 26 above. Thueson reluctantly acknowledged that Triple Crown Development also holds 15 investment lots worth about $20,000 per lot, for a total of $300,000, and Intermountain Community Bank holds a mortgage for about that amount. Tr. 77-79. I note that the total value of land held for sale by Triple Crown Development is $1,905,955. R. Exs. 9, 10, and 11, Schedule 7.

Thueson testified that he personally borrowed about $800,000 against his residence, which he “infuse[d] into the corporations to keep them afloat.” Tr. 80-81.

When asked by the undersigned what he thought could be paid MSHA over an eight 8-year installment period, Thueson testified as follows:

Well, if you ordered me to pay the $91,000 over eight year[s], I’d just have to do the math on it. And if that’s the court order, I guess that’s what I have to do.

Well, You Honor, if I felt that I had the financial whereabouts to do it, I’d pay the $91,000. And so to answer your question, I don’t think I can pay anything over the next eight years at the point I’m at.

I mean, if it’s a court order, it’s a court order. But if you are asking me what do I think I can pay, it’s based off of what my abilities are to stay in business. If I have the money, then I ought to be paying the $91,000.

CPA Harris also testified in narrative form, and then was cross examined by counsel for the Secretary. Tr. 97 et seq., 116 et seq. Harris testified that Thueson owns a complicated business structure involving lots of different entities, whose finances are reflected in Combined Financial Statements, which the banks requested in order to evaluate the overall financial picture. Tr. 100. Harris testified as follows:

“I think whether you focus on Thueson Construction by itself or if you look at it on a combined basis, or if you even pull into that picture Mr. Thueson, and his wife, as well, I don't think the conclusion is any different. You know, I understand my role here today is to give testimony on whether Mr. Thueson has the ability to pay. And in my opinion, if you need to conclude that someone has the ability to pay is a function of does he have assets that he can sell to generate the cash to pay, and that's usually measured from an accountant's standpoint as does he have any equity.

The other way you can make that determination is whether or not he's got sufficient cash flow.

Well, I can tell you if you look at Thueson Construction by itself it does not have any equity. It's -- I think the common term is "it's underwater."

You could liquidate that company today and you would still be $1- or $2 million short when you look at the money that he owes.

Over the last four years Thueson Construction has lost a cumulative of $3.6 million. So from a standpoint of Thueson Construction, there's no equity, meaning there's no assets he can sell, and he has lost money.

Now, earlier I remember a comment about 2011 looking better, and I think in 2011 Thueson Construction lost $16,000.

But if you look at the detail on that financial statement, that was only after having sold equipment that generated a $200,000 gain. So if he hadn't sold that equipment, he'd have had a loss in excess of $200,000.

And on top of that that equipment had to be sold so he could make payments to Wells Fargo that has an overall loan on all of his companies covering the equipment. So he was selling Thueson Construction equipment so he could generate cash to Wells Fargo.

He draws no salary. His salary, which is limited to $50-, $60,000 a year comes from a different company.

But the financial statements and the tax returns do show distributions. Distributions from Thueson Construction is not cash flow which goes into Mr. Thueson's pocket for discretionary spending purposes. It's funds that if they're ever available, because maybe one of his customers pays a bill, he takes those funds and shifts it to another entity so a lender can be paid. But from an accounting standpoint that type of transaction shows up as a distribution.

On the surface it looks like Mr. Thueson is taking $150,000 a year out of the company, and that's not the case, so that's very misleading.

If you look at the company by itself, I don't see any way that you can conclude that it has the ability to pay anything.

If you look at the company on a combined basis -- if you really look at the value of the assets of all of the entities, the value of the companies -- on a combined basis it would be my opinion that it's underwater, to use that term, $4- to $5 million.

If you could liquidate everything the companies own, you would still not satisfy the lenders by $3- or $4 million.

Over the past three or four years -- and I don't have an exact number, I could add them up off the financial statements -- on a combined basis, the losses have probably been $6- or $7 million.

Now, from a gross revenue standpoint, I think, in 2011 the combined companies did generate $11 million in gross revenues. And if Mr. Thueson had no expenses, if he didn't have to pay for labor and payroll taxes and insurance and all the costs of business that have to occur to operate, he'd have made $11 million, and we wouldn't be sitting here right now.

What's happening in this economy in the past three and four years revenues have shrunk and the margins on which Mr. Thueson operates have virtually disappeared.

He might go bid a job for Thueson or Pipe, and he might do a job for $10,000, and it might cost him $9,500 of direct operating expenses to carry out that job, which leaves him a net profit of $500 to go towards his general and administrative expenses, which -- I mean -- and it's not just Mr. Thueson's companies, it's been happening throughout the country, and people are unable to make a profit these days.

I think everybody hopes that if they can find a way to keep operating for another year, another five years, another ten years, they might be able to get back on their feet.

Three years ago I had no optimism at all that Mr. Thueson would still remain in business today. I'm quite surprised he's been able to do it. But he's been able to do it through extremely hard work, probably more so than that out of some amazing cooperation from the banks.

The banks really control Mr. Thueson's future. Everything he owns is due to them, literally due, d-u-e, due to the banks.

He has no net worth. The companies have no equity. But they don't come in and foreclose on all of his equipment, because if they take it away right now they know that when they liquidate it they're going to lose $5- or $6 million.

They have a hope that if they can keep Mr. Thueson operating, that in three, four, five years from now they might only lose $2 million or $3 million.

And I would venture to guess if we had one of the bankers sitting here today, he would tell you that they don't have any expectation of ever getting repaid completely.

But the banks aren't shutting people down and putting them out of business because, number one, it looks bad, and number two, they think we're good operators. And if they can keep them operating for a few more years maybe they can collect more than if they just shut someone down and liquidated them today.

That's the situation that Mr. Thueson is in. Whether it's him personally, Thueson Construction or the companies on a combined basis.

When asked by the undersigned how MSHA’s proposed penalties of $91,309, would affect the ability of Thueson Construction (or Mr. Thueson) to stay in business, Harris testified as follows:

You know, I think over a period of time Mr. Thueson probably has the ability to find some way to shift some cash flow around from other companies which aren't liable on this penalty.

My understanding is the penalty is Thueson Construction, so there's probably some way that he has it that he could pay something on a payment plan. But my bigger concern is that I don't think Mr. Thueson, right now, has let the bank know, and that would have to be disclosed as a liability on the financial statement.

And I'm more concerned about how the bank would react to something like that, and there's no guarantee the bank is going to continue allowing Mr. Thueson to operate. And if they see something like that happen, it suddenly pops up, it's on his financial statement, Mr. Thueson says, I've entered into some payment plan, the bank would most likely start getting a little nervous about deals Mr. Thueson's making. It might be cutting into the 100 grand, or the millions, that he owes them.

Personally, I think a good solution to this – and I -- excuse me, Mr. Thueson, but I haven't even mentioned this to him -- but if Mr. Thueson can stay in business and get the bank paid over the next seven, eight years, nine years, ten years and –

Get the bank paid what they're due. And then I think Mr. Thueson would be more than happy to pay $91,000.

But right this minute that could very likely be the straw that breaks the camel's back. Not from the standpoint that he might be able to find a way to generate some cash flow from someplace. You know, who knows, he might be able to sell some equipment and not tell the bank about it, even though they have a lien on everything.

But if he can stay in business for ten years and get the bank paid off, I think he'd agree that, yep, have the ability to pay them. Does he today? I would say no way.

When asked to recommend to the undersigned, what he thought Thueson Construction could pay on an installment basis for MSHA’s proposed civil penalty, Harris opined:

I would tell you Thueson Construction, Inc., has no ability to pay and can't pay anything. I would tell you that Mr. Thueson is under agreement with the bank right now where he can draw $60,000 a year to live on and support his family.

If there's some amount of that $60,000 a year that he could loan to Thueson Construction to pay over a period of time, it's probably not as much as a car payment. I mean, a couple hundred bucks a month, and I could probably work the math.

After proposing a resolution akin to an IRS "Offer in Compromise," whereby Thueson Construction would make a monthly payment of $100 under a 10-year installment plan, with the balance wiped clean after 10 years, both Thueson and Harris testified that Thueson could make such payments totaling about $12,000. Tr. 112-14. In fact, on further questioning from the undersigned, Thueson testified that he could pay MSHA $200 per month for 10 years if that is what the Court orders, although he was more equivocal given the uncertainty surrounding the future state of the economy and whether the bank would call his note. Tr. 137-38.

Harris further testified that the debt on Thueson Construction's balance sheet at the end of 2011 slightly exceeded $4.1 million, including three types of debt: accounts payable from daily operations, typically owed within 30 days, without payment terms attached; revolving bank lines of credit, which may be drawn upon, but require that interest, at a bare minimum, be paid every month; and term debt, such as a car loan or a mortgage, which is paid down every month. Tr. 120-21, 123-24. Harris testified that Thueson currently owed term debt to Wells Fargo and Cat Financial for equipment financing, and owed accounts payable to other creditors. Tr. 121.

Thueson testified that he owes CAT Financial $30,000 per month and is 60 days in arrears, and that he has not been making payment to Wells Fargo, who has foreclosed, prompting the sale of assets. Tr. 137-38. Harris confirmed that the source for a lot of the payments has been from the sale of equipment, as Thueson is not generating enough cash flow through operations to make monthly payments. Tr. 122.

On redirect, in response to a leading question from Mr. Thueson, Harris testified that Thueson Construction does not have the ability to pay the MSHA fine of $91,309. Tr. 135. On recross, Harris testified that Mr. Thueson personally has less ability to pay than Thueson Construction. He explained that this is because Lance Thueson is more “underwater” than his companies, given the size of his personal debt to the banks. Tr. 135.

Under Section 110(i) of the Act, the Commission and its judges must consider the following factors in assessing a civil penalty: the history of violations, the negligence of the operator in committing the violations, the size of the operator, the gravity of the violation, whether the violation was abated in good faith, and whether the penalties would affect the ability to continue in business. 30 U.S.C. § 820(i). The determination of the proper civil penalty is committed to the judge’s discretion, as circumscribed by the statutory criteria of section 110(i) and the deterrent purpose of the Mine Act’s penalty assessment scheme. Sellersburg Stone Co., 5 FMSHRC 287, 294 (Mar. 1983), aff’d 736 F.2d 1147 (7th Cir. 1984). The legislative history establishes that the purpose of a civil penalty is to induce those officials responsible for the operation of a mine to comply with the Act and its standards, and the penalty amount should be sufficient to make it more economical for an operator to comply with the Act’s requirements than to continue to operate in noncompliance. See S. Rep. No. 95-181, at 37–38 (1977). Penalties may not be eliminated because the Mine Act requires that a penalty be assessed for each violation. Spurlock Mining Co., Inc., 16 FMSHRC 697, 699 (April 1994), citing 30 U.S.C. 820(a); Tazco, Inc. 3 FMSHRC 1895, 1897 (Aug. 1981).

Absent proof that the imposition of authorized penalties would adversely affect a respondent’s ability to continue in business, it is presumed that no such adverse effect will occur. Spurlock Mining, 16 FMSHRC at 700; Sellersburg Stone, 5 FMSHRC at 294; Peggs Run Coal Co., 1 FMSHRC 350, 351-52 (May 1979). Rather, the operator must introduce specific evidence to show how the proposed civil penalty would adversely affect its ability to continue in business. Broken Hill Mining, 19 FMSHRC at 677–78. Past unaudited financial records showing net losses are not necessarily dispositive, particularly where the operator’s documentation is unreliable or other evidence, such as future business prospects or assets, including those of an alter ego, contradicts the operator’s assertions about its inability to pay. See Ember Contracting Corp, 33 FMSHRC 2742, 2751-52 (Nov. 2011)(ALJ), citing Spurlock Mining, 16 FMSHRC at 700 (citing Peggs Run Coal Co., 3 IBMA 404, 413–14 (Nov. 1974)); Heritage Res., Inc., 21 FMSHRC 626, 638 (June 1999) (ALJ) (finding no effect on ability to continue in business in light of operator’s substantial assets); L&T Fabrication & Constr., 21 FMSHRC 71, 73–74 (Jan. 1999) (ALJ) (discrediting reliability of unaudited financial records); Kennie-Wayne, Inc., 16 FMSHRC 2441, 2442–44 (Dec. 1994) (ALJ) (finding no effect on ability to continue in business in light of operator’s future business prospects). See also Apex Quarry, LLC, 33 FMSHRC 3158, 3163 (Dec. 2011) (ALJ) (operator failed to sustain its burden of proof, particularly in absence of audited financial statements); Johnco Materials, Inc., 33 FMSHRC 1331, 1433-34 (June 2011 (same).

In addition, the Commission has expressed concern about creating an economic incentive for operators to avoid a penalty by going out of business and reincorporating under a different name, and has noted that even operators who are leaving the mining business for ordinary commercial reasons will have little incentive to comply with safety regulations prior to their exodus, if monetary penalties can be evaded once the business quits altogether. See Unique Electric, 20 FMSHRC 1119, 1123 (Oct. 1998), relying on Reich v. OSHRC, 102 F.3d 1200, 1203 (11th Cir. 1997)). Cf. Granite Mountain Crushing, 26 FMSHRC 126, 130 (Feb. 2004)(ALJ) (imposing reduced penalty based, in part, on finding no evidence that the operator’s decision to liquidate assets was based on the Secretary’s proposed penalty).

Respondent, Thueson Construction, is a going concern, small in size, with a diminutive history of prior violations, all of which were paid for relatively modest penalties.

There is no dispute that the violations herein were abated in good faith. The gravity and negligence of the 19 section 104(a) violations at issue, eight of which were designated as significant and substantial, and twelve of which involve high negligence, have been admitted by Respondent.

Respondent claims that the civil penalties are excessive, and if imposed as proposed by the Secretary, they would adversely affect its ability to remain in business. This Commission has held that the mine operator has the burden of proving such a claim. Sellersburg Stone Co., 5 FMSHRC 287, 294 (Mar. 1985).

The Respondent convinced me herein that it had good cause for failure to produce audited financial statements, as requested, based on its inability to pay and the fact that the banks it deals with have relied on its Combined Financial Statements and Independent Accountants’ Review Reports in extending millions of dollars of credit to Respondent and it affiliated entities. See note 19, above. Nevertheless, the corporate and joint individual income tax returns and Combined Financial Statements and Accountants’ Review Reports that Respondent did produce fall short of establishing that MSHA’s proposed civil penalty of $91,309 would affect Thueson Construction’s ability to remain in business. Rather, those reports in conjunction with Thueson’s and Harris’ testimony, establish that the banks control the ability of Thueson Construction to remain in business, not MSHA’s proposed $91,309 civil penalty for admitted operation of its mining business in contravention of mandatory safety standards. Thueson testified, “I’m not sure what my future brings until I know that the bank is going to renew my line [of credit]. I could be out of business tomorrow. . . .” Tr. 86. As Harris put it, “The banks really control Mr. Thueson's future. Everything he owns is due to them, literally due, d-u-e, due to the banks . . .That's the situation that Mr. Thueson is in. Whether it's him personally, Thueson Construction or the companies on a combined basis.” Tr. 105-06. MSHA’s proposed penalty is small change compared to the millions owed the banks.

Harris’ testimony further establishes that the banks are unlikely to repossess collateralized equipment used to generate cash flow and enhance their chances of recovering more on their outstanding loans. Tr. 105, 124. Moreover, Thueson himself recognizes the need to stay in business with the assets he can maintain in order to generate income to pay off his creditors, one of which is MSHA. “. . . The assets that I have I can’t go out and do work without them, so it hinders my ability to generate income.” Tr. 90.

In addition, Thueson acknowledged that Thueson Construction’s business outlook is “slowly” getting better, but “[i]t’s not looking very good,” and “it’s just a matter of trying to keep our doors open at this point.” Tr. 32-33, 86. As noted, Thueson Construction lost $1,391, 135 in 2009, $846,208 in 2010, and only $16,394 in 2011. R. Exs. 9, 10, and 11, Schedule 8.

Total assets for Thueson Construction increased from $1,869,325 in 2010 to $2,686615 in 2011. R. Exs. 10, and 11, Schedule 7. Contracts receivable more than doubled from $760,450 in 2010 to $1619,666 in 2011. Id. Although total current liabilities increased from 2010 to 2011, total long-term debt was reduced considerably from $1,245,980 to $45,189. R. Exs. 10, and 11, Schedule 7. Moreover, total salaries paid out by Thueson Construction increased from 2010 to 2011 by $48,577. R. Exs. 10, and 11, Schedule 8. In 2011, Thueson and his wife reported a $166,258 distribution from Thueson Construction. Tr. 69; R. Ex. 7, 2011 Tax return for an S Corporation, page 6, Sch. K-1, line 12. Thueson could not explain what he did with that distribution, although Harris postulated, without specificity, that the distribution was shifted to another entity so a lender could be paid. Tr. 103. I further note Thueson’s testimony that any money recovered by Pipe, Inc. in its litigation to recover approximately $700,000 plus attorney fees under its construction lien on developed property, could “possibly be distributed” to Thueson Construction. Tr. 84.

In these circumstances, I find that Respondent has not met its burden to prove that MSHA’s proposed civil penalty of $91,309 would affect Thueson Construction’s ability to remain in business.

As noted, the present ability of Thueson Construction to continue in business depend on the banks’ willingness to continue to extend credit and refrain from foreclosing on its loans. Thueson Construction has failed to establish that it even disclosed MSHA’s contingent liability to its banks. As Harris testified, “But my bigger concern is that I don't think Mr. Thueson, right now, has let the bank know, and that would have to be disclosed as a liability on the financial statement.” Tr. 110. Respondent failed to show otherwise. Moreover, I note that the Commission has declined to reduce proposed penalties based on the operator’s mere speculation that the penalties would result in imposition of judicial liens that would foreclose financing. See Spurlock Mining, supra, 16 FMSHRC at 700.

Finally, I agree with Judge Paez’s observations in Ember Contracting that it is not enough to show that a proposed civil penalty could have a substantial negative impact on profits since a civil penalty is designed to make compliance with the Mine Act, and the protection of miners, more profitable than noncompliance. 33 FMSHRC at 2760. The fact that an operator must spend money to bring its operations into compliance with MSHA’s safety and health standards, or neglects to budget money for paying civil penalties, provides no basis for setting aside civil penalty assessments for proven violations. See United Energy Servs., 15 FMSHRC 2022, 2085 (Sept. 1993) (ALJ), aff’d sub nom. United Energy Servs. v. FMSHRC, 35 F.3d 971 (4th Cir. 1994). Here the violations were stipulated to be proven, as written.

Based on the foregoing, I reject Respondent’s claim that it cannot continue in business if ordered to pay MSHA’s proposed penalty of $91,309. Rather, I conclude that Thueson Construction has not met its burden of establishing that the proposed civil penalty would adversely impact its ability to continue in business.

Nevertheless, applying the remaining civil penalty criteria under section 110(i) of the Mine Act, I find that a reduction in the proposed penalty is appropriate. The gravity and negligence of the 19 section 104(a) violations at issue, eleven of which involved guarding violations under 30 C.F.R. § 56.14107(a), eight of which were designated as significant and substantial, and twelve of which involve high negligence, have been admitted by Respondent. However, Thueson Construction is small in size. It currently has only 15 employees in the construction industry, and when the instant citations were written at Portable Crusher 1 Mine on October 14, 2009, it employed only three miners. Tr. 34-36.

In addition, Thueson Construction has a relatively diminutive history of prior violations, all of which were paid for relatively modest penalties. As noted above, the mine received a Certificate of Honor from the Holmes Safety Association, signed by the former Assistant Secretary of Labor for Mine Safety and Health, for working 50,553 work hours from July 1, 2001 through September 30, 2008 in the metal/non-metal industry without incurring a lost workday injury. Tr. 17; R. Ex. 2. Prior to the instant inspection, from December 12, 2001 until March 24, 2009, Thueson Construction received only 46 section 104(a) citations, 9 of which were S&S, and one section 104(g)(1) S&S citation. All forty-seven citations over this eight-year period were paid; one for $1,200, and the remaining forty-six citations for $360 or significantly less. Additionally, there is no dispute that the violations admitted herein were abated in good faith.

In calculating the penalty under the 30 CFR § 100.3 criteria , the Secretary has proposed a penalty of $91,309. See Appendix A. The point-based assessment criteria in section 100.3, awards each citation a predetermined number of points corresponding to the gravity, negligence, and the operator’s size and violation history. Although the Commission is not bound by the Secretary’s proposed penalty or the section 100.3 point scheme, examination of the rationale behind the proposed penalty provides valuable insight into assessing the proposed penalty’s reasonableness under the criteria set forth in section 110(i) of the Act.

MSHA’s proposed assessment allocated twenty-five points per citation for the operator’s history of violations. This allocation dramatically increased the proposed penalty. In fact, 86.29% of the total proposed penalty can be attributed to the points awarded for the operator’s history of violations. Had the Secretary not factored in the operator’s history, the proposed penalty would have been assessed at $12,514. As noted above, Respondent’s citation history in the fifteen months prior to the instant inspection does not appear to warrant a $78,795 premium. Respondent was issued only three citations in the fifteen months preceding the instant inspection. Twelve older citations were settled and became final orders of the Commission during that time. The timing of Respondent’s settlement inflated Respondent’s history of violations (calculated as VPID, Violations Per Inspection Day) and obscured the fact that the Respondent’s fifteen-month violation history was relatively benign.

In light of this relatively small history of violations, the small size of Respondent, and Respondent’s good-faith abatement of the instant violations, I find that a total penalty of $25,028 is appropriate. Such a penalty is twice what section 103 would prescribe if the violation history were not taken into account and the assessed penalty provides adequate deterrence against repeat violations of the mandatory safety standards, particularly guarding violations.

In consideration of the bleak financial outlook facing Respondent, the penalty will be made payable on a five-year installment plan outlined below.

The nineteen citations at issue herein are AFFIRMED, AS WRITTEN, and Thueson Construction Co., and/or Thueson Construction, Inc., is ORDERED that the operator pay a total penalty of $25,028 in fifty-nine (59) consecutive monthly installments of $417 each, and a sixtieth (60) and final payment of $425, with the first payment due within thirty days of the date of this decision and each subsequent payment due every thirty days thereafter until paid in full. Upon receipt of final payment, this case is DISMISSED.

Pamela Mucklow, Esq., U.S. Department of Labor, Office of the Solicitor, 1999 Broadway, Suite 800 Denver, Colorado 80202-5708

Lance Thueson, Thueson Construction, Inc., 455 South Kinds Road, Nampa, Idaho 83687

Citation	30 C.F.R.	Repeat Violations	S & S	VPID	RPID	Negligence	Likelihood	Injury Type	Persons Affected	Proposed Penalty	Assessed Penalty
6483267	56.14107(a)	8	Yes	25	20	High	RL	Fatal	1	$31,988	$8,658
6483268	56.14107(a)	8	No	25	20	High	UN	PD	1	$2,901	$784
6483269	56.14107(a)	8	No	25	20	Moderate	UN	PD	1	$873	$234
6483270	56.14107(a)	8	No	25	20	High	UN	PD	1	$2,901	$784
6483271	56.14107(a)	8	Yes	25	20	Moderate	RL	PD	1	$4,329	$1,170
6483272	56.14107(a)	8	No	25	20	Moderate	UN	PD	1	$873	$234
6483273	56.11027	1	Yes	25	0	High	RL	Fatal	1	$6,458	$1,746
6483274	56.14107(a)	8	No	25	20	Moderate	UN	PD	1	$873	$234
6483275	56.11003	0	Yes	25	0	High	RL	Fatal	1	$6,458	$1,746
6483276	56.14107(a)	8	No	25	20	High	UN	PD	1	$2,901	$784
6483277	56.14107(a)	8	No	25	20	High	UN	PD	1	$2,901	$784
6483278	56.14107(a)	8	No	25	20	High	UN	PD	1	$2,901	$784
6483279	56.14107(a)	8	Yes	25	20	Moderate	RL	Fatal	1	$9,634	$2,608
6483280	56.11027	1	Yes	25	0	High	RL	Fatal	1	$6,458	$1,746
6483281	56.12032	0	Yes	25	0	High	RL	Fatal	1	$6,458	$1,746
6483282	56.14100(b)	0	Yes	25	0	Moderate	RL	PD	1	$873	$234
6483283	56.4201(a)(1)	1	No	25	0	High	UN	Fatal	1	$1,304	$352
6483284	56.14100(b)	0	No	25	0	Moderate	UN	LW/RD	1	$117	$200
6483285	56.18002(a)	0	No	25	0	High	NO	NO	0	$108	$200

									TOTAL	$91,309	$25,028