Coal Companies Abandon Workers

The Charleston Gazette, Charleston, West Virginia

First in series published December 17, 1995

Gary, West Virginia—One-time coal operator Ted Osborne is spending his weekends in jail this winter. In September, 1995, U.S. Magistrate Judge Mary Feinberg sentenced him to prison for 60 days. Osborne admitted he willfully failed to pay $150,000 in federal mine reclamation fees.

Osborne also owes $10.1 million to West Virginia’s Worker’s Compensation Fund. Yet state officials have done little to collect the money or prosecute Osborne. They simply mail Osborne an occasional bill. Fund officials asked him to pay up again. He hasn’t.

Ed Staats, chief financial officer for worker’s compensation, said Osborne’s delinquent account may have been referred to the attorney general’s office. If not, he said, it will be referred to them soon.

“We never had a collection process here until 1993,” Staats said. “No one paid any attention to accounts that were delinquent.”

In the meantime, Osborne and his colleagues kept millions of dollars due the compensation fund. Instead of helping injured workers, the cash went for big houses, luxury cars, airplanes and lavish vacations.

The formula was simple. Don’t pay federal taxes. Avoid mine reclamation fees. Ignore environmental laws.

Don’t pay worker’s compensation premiums. Stiff the United Mine Workers Health and Retirement Funds out of royalties.

All this adds up quickly. If a coal operator employs 100 miners and pays each one $50,000 a year, he can save $1.5 million a year by evading worker’s compensation bills.

More than 1,200 coal companies owe at least $185 million to the West Virginia Worker’s Compensation Fund, according to a new list of coal industry deadbeats.

The total does not include debts that were written off as uncollectable. Nor does it include all debts owed by some bankrupt coal companies, such as those operated by Beckley coal operator H. Paul Kizer. The actual total could be a lot higher.

The new list reveals 113 coal companies owe between $400,000 and $10.3 million. Some operators, such as Kennie Compton and Kennie Childers, own more than one of the companies.

All but two of the top coal-mine debtors operated underground mines, where premiums can pile up quickly. For every $1 million in wages, underground mine owners pay $297,100 in compensation premiums, while surface mine owners pay only $97,500.

For years, Worker’s Compensation officials made little effort to collect those debts.

“This money has been owed for a long time. It was not accumulated overnight,” said John Kozak, the Worker’s Compensation Fund general counsel.

“It is the heart of the debt we will be looking at in our long-contemplated lawsuits,” he said Friday. “We hope we can capture some of that money back from responsible third parties.”

Employment Programs Commissioner Andy Richardson plans to use private lawyers to sue big companies that used small contractors to mine coal.

Many of those small contract operators went bankrupt or simply disappeared, leaving behind long trails of debts, including tens of millions of dollars owed to the financially troubled Worker’s Compensation Fund.

Some major companies—such as Pittston Coal, A.T. Massey Coal Co. and Island Creek Coal Co.—hired hundreds of contractors to operate small mines, particularly in the southern coalfields.

Other major companies, such as Arch Mineral Corp., have used contractors more sparingly. Arch’s contractors generally made all payments due the compensation fund and other creditors.

The big companies owned coal in the ground, through deeds or leases. After the coal was mined by contractors, the big companies decided where to sell it.

Some small contractors are simply fronts for others trying to avoid bills, evade federal permit-blocks or escape other legal problems.

For example, the president of one McDowell County coal company actually runs a flower shop. The president of another works at a Mingo County motel.

Ted Osborne topped the list with a debt of $10.3 million. Osborne Brothers Inc., his company, ran mines in Gary once operated by U.S. Steel Mining. Osborne ran up his debt between 1987 and 1992, apparently neglecting to pay worker’s compensation premiums year after year.

Some operators with large debts are still in business. State officials often have the power to shut down scofflaws under both environmental and worker’s compensation laws. But they rarely do.

Compton, a Beckley coal operator, owns several companies on the list of top debtors, including Angela-Ann Coal Corp., Kennie-Wayne Inc., Lockridge Development Inc. and Kennison Development Inc. Compton owes Workers’ Compensation more than $21 million from 39 mining companies.

Despite his massive debts, Compton is still in business. Last month, Compton said he was a consultant for eight or 10 coal companies.

Just before Christmas, Carl Hopkins died in D-Max No. 2 mine in Wyoming County when part of a continuous mining machine crushed him. Compton said he did not control the mine. Two former D-Max supervisors said he did control the company.

Records at the Secretary of State’s office reveal Compton also owns mining equipment used by D-Max. Apparently state officials were unaware of Compton’s ties to D-Max’s Wyoming County mines.

Bluestone Coal Corp., a medium-sized coal producer owned by Beckley coal operator James C. Justice II, has used 44 contractors since 1985, according to Division of Environmental Protection monthly reports.

Thirty of these 44 contractors owe money to worker’s compensation. Only one contractor owes more than $400,000. But taken together, 30 contractors who worked for Bluestone owe $2.9 million.

Since worker’s compensation does not keep records of which mines generate debts, some of that $2.9 million may come from mines contractors operated for other companies.

McDowell County operator Truong Van Nguyen mines coal for Caretta Mining Inc. today through McDowell Energy Inc. and Cu Chi Mining Inc. McDowell Energy owes $510,337 to the Worker’s Compensation Fund. TVN Coal Inc., a company he operated previously, owes $155,054.

Nguyen’s name appears on the U.S. Office of Surface Mining’s national “permit-block” list because he did not pay environmental fines assessed against TVN in 1988.

Any operator on the block list is barred from getting new mining permits anywhere in the nation. DEP investigator Gene Coccari plans to look into Nguyen’s operations this week.

“There seems to be a correlation beween people who forfeit permits and people who have big worker’s compensation debts, at least in the past,” Coccari said.

Amos O. Wilson, widely regarded as West Virginia’s top worker’s compensation lawyer for 25 years, also made the list of leading scofflaws.

For more than 25 years, Wilson represented injured workers against employers and the compensation fund. In the 1980s, Wilson began opening coal mines himself. His companies were called Huff Inc. and Ethel Coals, Inc.

When it came time to pay worker’s compensation premiums himself, Wilson didn’t. Today, Huffs, Inc. owes $1,655,570 and Ethel Coals, $53,000.

During the years Wilson shortchanged the fund, worker’s compensation officials continued sending him checks for millions of dollars in legal fees.

Wilson’s worker’s compensation career screeched to a halt in 1991, when he was still making millions of dollars from the compensation fund.

Wilson pleaded guilty to three state felonies of obtaining money under false pretenses. He also admitted he illegally altered hundreds of medical reports to get clients larger compensation awards.

Former Worker’s Compensation Commissioner Gretchen O. Lewis said Wilson also systematically defrauded injured workers for at least 20 years by charging much higher legal fees than state law allowed.

Wilson also owes $1.2 million to the Internal Revenue Service, according to four bankruptcy petitions he filed in 1990 for himself, his wife and his businesses.

The Lady H Coal Co. and Eastwood Construction Inc., which have also filed for bankruptcy, owe $3.3 million to worker’s compensation, according to the new list. The companies are owned by former Worker’s Compensation Commissioner John Leaberry, former House of Delegates Speaker Clyde See, (DHardy), and the heirs of William Post.

In their proposal to sell Lady H Coal’s assets to A.T. Massey for $7 million, Leaberry and See reported their companies owe worker’s compensation about $8.5 million, or $5.2 million more than the agency’s own list reported.

Richardson predicts things will get better.

“It is proving difficult to collect long-term debts owed to the worker’s compensation program. However, the various tactics we have employed over the past nine months are beginning to produce results,” he said.

“The first six months of this fiscal year saw an $18.5 million increase in delinquent collections over the same six months in the 1994-95 fiscal year.

“This indicates some measure of success with injunctions and telephone dunnings we have done with collection agencies. More needs to be done to catch scofflaws who continue to ignore their responsibility.

“Now, our billings also contain a notice of potential criminal action against firms that fail to pay their obligations.”

Richardson said he plans to bring some cases to the Kanawha County grand jury next month.