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After a string of administrative victories, Alton Coal Development has been handed a defeat, although one that won't impede its strip-mine ambitions near Bryce Canyon National Park.

The Utah Board of Oil, Gas and Mining on Wednesday sided with environmentalists and regulators, ruling that coal developers must show their legal adversaries sued in "bad faith" with the intent to harass and embarrass if they want to recoup attorney fees.

The panel did not explain its rationale following three hours of arguments, but the decision came after state lawyers said the bad-faith standard was a requirement Utah agreed to in 1980 when the federal government ceded primacy to the state over coal mining regulation. Applying a lower standard could jeopardize that arrangement.

The underlying litigation arose in 2009 after state regulators approved Alton's plans to strip mine 600 acres of private coal at its Coal Hollow site in Kane County. Several conservation groups unsuccessfully contested that approval before the mining board and later in the Utah Supreme Court, which unanimously overruled their claim that the Coal Hollow impacts weren't properly reviewed.

Wednesday's ruling will likely preclude Alton from recovering sizeable legal fees in the case and possibly in future should a controversial expansion of its mine plan — now undergoing an environmental review— winds up in the courts.

"It's difficult to prove the intent of a party," the company's lawyer Denise Dragoo told the board. "That [bad faith] standard bars a claim for attorney fees."

The ruling was a relief for members of several environmental groups, who feared a pro-Alton finding might have exposed other organizations or citizens to legal costs should they unsuccessfully litigate against future coal projects in Utah.

Alton's lawyers argued that the coal operator should only have to show the legal challenge was groundless to win costs. Under current administrative law, the board can use its discretion on which standard to apply, they said.

The dispute highlights a hole in Utah's administrative code that raised the possibility the state could be out of compliance with its commitments to the federal Office of Surface Mining, according to a state attorney representing the Division of Oil, Gas and Mining,or DOGM.

Under that pact, which enabled the Utah Coal Program overseeing the state's coal industry, Utah's rule on attorneys fees must mirror the federal standard, Assistant Attorney General Steven Alder told the oil, gas and mining board. However, the rule was dropped from the state code when the coal program was revamped in the early 1990s — a "bureaucratic oversight" that only came to light when Alton petitioned for fees.

"Can an inadvertent error trump federal law? I don't think so," Alder said.

Alton's lawyers flatly rejected the claim and even wrote to Utah Gov. Gary Herbert last week in the case, seeking his intervention.

At the hearing, Alder stressed state regulators with DOGM were a "disinterested" party in the dispute and intervened only to resolve the confusion over Utah's attorney-fee rule because it called into question the status of coal-mine regulation in Utah. But their involvement clearly favored the Sierra Club and three other groups that stood to be billed hundreds of thousands of dollars.

Dragoo said Alton petitioned for an unspecified amount of fees only after the Sierra Club sought $87,000 in fees from DOGM.

An attorney for the Natural Resources Defense Council, one of the co-plaintiffs, countered that the two fee petitions are completely unrelated. The environmentalists' fee request had to do with a narrow part of the dispute and served a valid public policy purpose in protecting cultural resources, NRDC lawyer Sharon Buccino said.

"You don't want to discourage citizen groups from helping the division in enforcing the regulations," Buccino said.

A spokesperson for the governor's office declined comment Wednesday, saying Herbert wanted to review the board's written decision.

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