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Note: The Commonwealth of Kentucky Energy and Environment Cabinet (Agency/Beneficiary) issued a permit to Black Fire Coal Company (Applicant/Mining Company) to mine a section of property for coal in Clay County, Kentucky, known as Hobbs Property under a Mining and Reclamation Plan submitted by Applicant/Mining Company. The permit required that the permit holder tender reclamation bonds in the form of a standby LCs. Accordingly, Applicant/Mining Company obtained four standby letters of credit for approximately USD 55,000 issued by Community Trust Bank (Issuer) in favor of Agency/Beneficiary.

When Applicant/Mining Company failed to reclaim the properties, Agency/Beneficiary issued a Notice of Noncompliance, alleging that Applicant/Mining Company violated stipulations of the permit. Agency/Beneficiary then initiated administrative proceedings against Applicant/Mining Company seeking forfeiture of the bonds. On issuance of the final orders, Applicant/Mining Company filed a petition for review. Agency/Beneficiary did not list Issuer as a party to the action.

The Court of Appeals of Kentucky, in an opinion by Clayton J., affirmed the judgment of the Clay Circuit Court House J., ordering forfeiture of the bonds and revoking the mining permit.

Applicant/Mining Company claimed that Agency/Beneficiary had not followed the requisite procedures for bond forfeiture under the applicable statute by giving notice to the surety or financial institution furnishing the standby LC. The appellate court ruled that letters of credit do not receive the same notification as a suretyship bond. The appellate court stated, "A letter of credit is security to guarantee payment if the obligation undertaken is not performed. In this case, [Issuer] issued letters of credit guaranteeing [Applicant/Mining Company's] performance of reclamation on the property. The letters of credit were payable on demand. This is not the same as actions taken if a surety were involved." The appellate court also ruled that Agency/Beneficiary had met its burden of proof in showing a failure of Applicant/Mining Company to perform as per stipulations in the permit.

[JEB/sls]

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