Contract analysis

I. Executive Summary This memorandum analyzes the three-tier dispute resolution provision contained in the Department of Justice's first draft consent decree, circulated on November 8, 2024, in the above-captioned matter and recommends modifications to protect the interests of Torchlight Mining Corp. ("TMC"). While the government's counter-redline has not yet been formally received, informal signals from government c

1. Ridgecrest Copper-Molybdenum Mine (Drummond, Montana)

2. Gallatin Chemical Works (Belgrade, Montana)

3. Bonanza Creek Gold Mine (Lander County, Nevada)

4. Kanawha Bend Chemical Plant (Institute, West Virginia) The financial exposure associated with this consent decree is substantial. The combined nominal remediation costs total approximately $343.5 million, supplemented by civil penalties of $31.5 million, supplemental environmental projects ("SEPs") of $12.0 million, reimbursement of EPA past costs of $18.1 million, and estimated independent monitor costs of $4.8 m

II. Background and Context A. Procedural Posture On January 18, 2024, the United States of America, acting through the Department of Justice on behalf of the Environmental Protection Agency, together with the State of Montana, filed a complaint against Torchlight Mining Corp. and certain affiliated entities (collectively, "TMC" or "Defendants") in the United States District Court for the District of Montana, Missoula

1. Ridgecrest Copper-Molybdenum Mine (Drummond, Montana) The Ridgecrest Mine is the largest and most complex of the four sites and will account for the majority of TMC's remediation expenditures under the consent decree. The mine operated as an open-pit copper-molybdenum extraction facility from 1958 through 2019, producing an estimated 2.4 billion pounds of copper concentrate and 180 million pounds of molybdenum con

2. Gallatin Chemical Works (Belgrade, Montana) The Gallatin Chemical Works is a former industrial chemical manufacturing facility located in Belgrade, Montana, approximately 12 miles west of Bozeman. The facility operated from 1964 through 2008, producing carbon disulfide (CS₂), sodium thiosulfate, and various sulfur-based industrial chemicals. The site is subject to RCRA corrective action under Permit No. MTD0987124

3. Bonanza Creek Gold Mine (Lander County, Nevada) The Bonanza Creek Gold Mine is an active open-pit, heap-leach gold mining operation located in Lander County, Nevada, approximately 35 miles south of Battle Mountain. The mine commenced operations in 2015 and is one of TMC's currently producing properties. The consent decree addresses three documented releases from heap-leach pad liner failures occurring in March 202

4. Kanawha Bend Chemical Plant (Institute, West Virginia) The Kanawha Bend Chemical Plant is a former specialty chemical manufacturing facility located in Institute, West Virginia, in the Kanawha River Valley. The facility operated from 1945 through 2012 and is subject to RCRA corrective action under Permit No. WVD048823915. The primary environmental concern is the presence of dense non-aqueous phase liquid ("DNAPL")

III. Analysis of the Government's Proposed Three-Tier Dispute Resolution Mechanism The government's proposed dispute resolution mechanism, set forth in Section XIX (paragraphs 87 through 104) of the first draft consent decree, establishes a three-tier process for resolving disputes between the parties. We analyze each tier below, identify TMC's principal concerns, and recommend specific modifications. A. Tier 1: Info

1. Structure as Proposed. Under the government's proposal, either party may invoke the dispute resolution process by providing written notice to the other party identifying the specific matter in dispute and setting forth the invoking party's position with respect to that matter. Upon receipt of the notice, a 30-day period for informal negotiation commences. During this period, the parties' designated representatives

2. TMC's Concerns. We have identified four principal concerns with the government's proposed Tier 1 mechanism. First, the 30-day informal negotiation period may be inadequate for complex technical disputes. Many of the disputes likely to arise under the consent decree will involve highly technical scientific and engineering questions — for example, the selection of remediation technology at Ridgecrest, the evaluation

3. Recommended Modifications. We recommend the following modifications to the Tier 1 mechanism: (a) Extend the informal negotiation period to 45 days, with an automatic 15-day extension. TMC should propose that the initial informal negotiation period be extended from 30 to 45 days, with a provision for an automatic 15-day extension upon written request by either party. This modification would provide additional time

1. Structure as Proposed. Under the government's proposal, if the parties are unable to resolve the dispute through informal negotiation during the Tier 1 period, the dispute is elevated to EPA's Office of Enforcement and Compliance Assurance ("OECA") for a formal written decision. EPA has 30 days from the close of the informal negotiation period to issue a written decision resolving the dispute. The decision is bind

2. TMC's Concerns. The Tier 2 mechanism raises several concerns of fundamental procedural fairness and practical significance. First, EPA serves as both party and adjudicator at Tier 2. EPA is the agency that initiated the enforcement action, negotiated the consent decree terms, and will oversee TMC's compliance. When a dispute arises under the decree, EPA is invariably an interested party — indeed, in most cases, th

3. Recommended Modifications. We recommend the following modifications to the Tier 2 mechanism: (a) Require EPA to accept and consider TMC's written submissions. TMC should propose that the consent decree expressly require EPA to accept and consider written submissions from TMC — including technical reports, data analyses, and expert opinions from TMC's consultants such as Pinnacle Creek Environmental — before issuin

1. Structure as Proposed. Under the government's proposal, TMC may petition the Court — the Honorable Donald W. Molloy, United States District Court for the District of Montana, Missoula Division — for judicial review of EPA's Tier 2 decision within 30 days of receiving the decision. The government's draft specifies the following parameters for judicial review: • Standard of review: The Court shall review EPA's decis

2. TMC's Concerns. The Tier 3 mechanism as proposed raises the most significant concerns of any provision in the dispute resolution section. In practical terms, the combination of the arbitrary-and-capricious standard, the record-limitation rule, and the burden-of-proof allocation renders judicial review largely illusory. We elaborate on each concern below. Standard of review. The arbitrary-and-capricious / substanti

3. Recommended Modifications — Standard of Review. We recommend that TMC advance the following positions on the standard of review, in order of preference: Primary position: *De novo* review for all disputes. TMC's primary position should be that the Court reviews EPA's Tier 2 decision de novo — that is, the Court exercises its independent judgment on both questions of fact and questions of law, without deference to

4. Recommended Modifications — Burden of Proof. We recommend that TMC advance the following positions on burden of proof: Primary position: Burden on the government. TMC's primary position should be that the burden of proof at Tier 3 rests on the government (EPA) to demonstrate the reasonableness of its Tier 2 decision. This position follows logically from the structural concern identified above: because EPA acts as

5. Recommended Modifications — Procedural Safeguards at Judicial Review. In addition to the standard-of-review and burden-of-proof modifications discussed above, we recommend the following procedural modifications to the Tier 3 mechanism: (a) Extend the petition period from 30 to 45 days. TMC should propose that the deadline for filing a petition for judicial review be extended from 30 to 45 days. Given the complexit

IV. Cross-Cutting Issues In addition to the tier-specific issues analyzed in Section III above, several cross-cutting issues affect the operation of the dispute resolution mechanism as a whole. We address these issues below. A. Scope of Disputes Subject to the Mechanism The government's draft provides that all disputes "arising under or relating to" the consent decree are subject to the three-tier dispute resolution