Bailey Glasser Wins Appeal Protecting Interstate Market for Coal: Kentucky Can’t "Have Its Cake and Eat It, Too.”
On February 3, 2023, Bailey & Glasser, LLP, secured an important appellate victory for Foresight Coal Sales, a leading seller of thermal coal in the United States. The federal Court of Appeals for the Sixth Circuit issued a decision finding that Foresight is likely to succeed on its constitutional challenge to a Kentucky law that favors coal from states that impose coal severance taxes. Bailey Glasser partner Joshua Hammack led the appellate team, which included partner Nick Johnson and associate Christopher Smith.
This decision has far-reaching consequences for the coal industry, and for anyone selling across state lines, because it ensures states cannot extend or deny favorable treatment based on state of origin or similar “proxies” (e.g., state political decisions). As the Sixth Circuit explained, such treatment amounts to “commercial warfare” that threatens the unified national market.
The challenged law, S.B. 257, requires the agency that regulates Kentucky utilities—the PSC—to evaluate the reasonableness of coal purchases only after subtracting the amount of any coal severance tax from producers’ actual bid prices. In this way, the Sixth Circuit explained, “the Kentucky legislature decided to have its cake and eat it, too.” Kentucky, on the other hand, argued S.B. 257 simply leveled the playing field. The appellate court’s response to this argument was succinct: “Twice the district court bought this argument. We do not.”
Specifically, the Sixth Circuit confirmed that Kentucky’s law impermissibly discriminates by “demand[ing] that coal from non-severance taxing states (e.g., Illinois) be treated one way, and coal from severance-taxing states (e.g., Kentucky) another.” The Court explained that, under the law, “Illinois coal is worse off as a matter of basic economics and Supreme Court precedent.” Noting that laws that discriminate against interstate commerce are “virtually per se” invalid, the Sixth Circuit remanded the case to the district court to determine whether Foresight satisfies the remaining three preliminary-injunction factors.
Lead appellate counsel Joshua Hammack commented: “Years ago, Kentucky decided to prop up in-state coal producers by requiring regulated utilities to pretend in-state producers were price competitive when they weren’t. Foresight has consistently maintained, for years, that these attempts to reshape the interstate market ran afoul of the Constitution. The Sixth Circuit’s order confirms what we’ve said all along—Kentucky is not free to discriminate in the interstate marketplace for coal.”