8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 8-K

CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): July 9, 2009

WESTMORELAND COAL COMPANY
(Exact name of registrant as specified in its charter)

Delaware	001-11155	23-1128670
(State or other Jurisdiction of Incorporation)	(Commission File Number)	(IRS Employer Identification No.)

2 North Cascade Avenue, 2nd Floor, Colorado Springs, CO	80903
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s telephone number, including area code: (719) 442-2600

(Former name or former address if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 1.01. Entry into a Material Definitive Agreement.

As reported in Westmoreland Coal Company’s most recent annual report on Form 10-K, the U.S. Minerals Management Service (“MMS”) has asserted transportation and gross inequity claims against Western Energy Company, a subsidiary of Westmoreland Coal Company, for federal coal royalties allegedly due and owing on payments received by Western Energy from customers.

Transportation Claims

The MMS claimed that revenues earned by Western Energy under the transportation agreements with its customers were, in reality, payments for the production and sale of coal, and therefore royalty bearing. On July 9, 2009, MMS and Western Energy entered into a settlement agreement whereby Western Energy will pay the sum of $12.2 million to resolve all issues surrounding the transportation claims for all periods through December 31, 2007, and will pay future royalties on the transportation proceeds in accordance with the established methodology of MMS. The customers at Western Energy have agreed to reimburse 80% of the settlement amount and to pay 80% of future royalty payments owed to MMS.

Gross Inequity Claim

MMS issued a demand for a royalty payment in connection with a settlement agreement dated February 21, 1997, between Western Energy and its customer, Puget Sound Energy, which reduced the price of coal paid by Puget Sound. On July 9, 2009, MMS and Western Energy entered into a settlement agreement whereby Western Energy will pay the assessed amount of approximately $1.3 million. Puget Sound Energy has agreed to reimburse Western Energy for all of the settlement costs. 

Item 9.01. Financial Statements and Exhibits

Exhibit No.	Description
10.1	Settlement Agreement and Mutual Release between Western Energy Company, the United States Department of Justice, and the United States Department of the Interior, through its agency the Minerals Management Service dated July 9, 2009
10.2	Settlement Agreement and Mutual Release between Western Energy Company and the United States Department of the Interior, through the Minerals Management Service dated July 9, 2009

2

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	WESTMORELAND COAL COMPANY
Date: July 15, 2009	By: /s/ Morris W. Kegley
	Morris W. Kegley,
	General Counsel and Secretary

3

EXHIBIT INDEX

Exhibit No.	Description
10.1	Settlement Agreement and Mutual Release between Western Energy Company, the United States Department of Justice, and the United States Department of the Interior, through its agency the Minerals Management Service dated July 9, 2009
10.2	Settlement Agreement and Mutual Release between Western Energy Company and the United States Department of the Interior, through the Minerals Management Service dated July 9, 2009

EX-10.1

Exhibit 10.1

SETTLEMENT AGREEMENT AND MUTUAL RELEASE

This Settlement Agreement and Mutual Release (Settlement Agreement) is made between Western Energy Company, (Western Energy), the United States Department of Justice (DOJ), and the United States Department of the Interior (DOI), through its agency the Minerals Management Service (MMS) (collectively “the Parties”).

RECITALS

A. Western Energy is the lessee of the Federal coal leases located in the Rosebud Mine in Montana listed in Exhibit A. The Rosebud Mine is a surface mining operation consisting of designated areas A, B, C, D, and E, with each designated area supplying coal to specific units of the adjacent Colstrip Power Plant (Colstrip Plant).

B. On July 10, 1981, Western Energy entered into a Coal Transportation Agreement (CTA) with the Colstrip Plant under which Western Energy agreed to design, construct, own, operate, and maintain a coal conveyor system for the transportation of coal to the Colstrip Plant. In the CTA, the Colstrip Owners agreed to pay Western Energy for transportation of the coal.

C. On September 23, 2002, The MMS, based on an audit conducted by the State of Montana (State), issued to Western Energy an Order to Report and Pay Additional Royalties (2002 Order). This Order to Pay directed Western Energy to pay additional royalties of $ 3,184,724.85 on coal produced and sold from the Rosebud Mine from the period from October 1, 1991, through December 31, 1995. MMS issued the Order because it determined that Western Energy had underpaid royalties because Western Energy incorrectly excluded payments it received under the CTA for transporting production from within the Rosebud Mine to the adjacent Colstrip Plant. Western Energy appealed the 2002 Order to the MMS Director in Docket No. MMS-02-0092-COAL.

D. On January 27, 2003, MMS, based on an audit conducted by the State, issued a second Order to Report and Pay Additional Royalties (2003 Order), directing Western Energy to pay additional royalties of $ 3,830,043.50 on coal produced and sold from the Rosebud Mine for the period from January 1, 1996, through December 31, 2001 for the same reasons as the 2002 Order. Western Energy appealed the 2003 Order to the MMS Director in Docket No. MMS-03-0022-COAL.

E. On March 28, 2005, the Associate Director, Policy and Management Improvement, MMS, denied Western Energy’s appeals in MMS-02-0092-COAL and MMS-03-0022-COAL on substantive grounds, but rescinded the 2002 Order to the extent it directed the payment of royalty accruing more than 7 years before the date of the 2002 Order (Associate Director’s Decision). The Associate Director’s Decision rescinded the portion of the 2002 Order applying to royalties accruing more than 7 years before the date of the 2002 Order based upon the then-MMS Director’s October 8, 2002, written policy directing MMS to grant lessees’ appeals for any period more than 7 years prior to the date of the order (7-Year Policy). In Chiang v. Kempthorne, No. 1:04CV00199, slip op. (D.D.C. Aug. 30, 2007), the court disagreed with the government and held that the 7-Year Policy was arbitrary and capricious and vacated and remanded the 7-Year Policy to MMS. On November 17, 2007, the current MMS Director rescinded the 7-Year Policy. Western Energy appealed the Associate Director’s Decision to the Interior Board of Land Appeals (IBLA). The IBLA upheld the Associate Director’s Decision on all grounds in Western Energy Company, 172 IBLA 258 (2007) (IBLA Decision).

Exhibit 10.1

F. Western Energy sought judicial review of the IBLA Decision in Western Energy Company v. Kempthorne, No. 1:07-cv-2237 (RCL) (D.D.C.) (Litigation).

G. On September 26, 2006, MMS, based on an audit conducted by the State, issued a third Order to Report and Pay Additional Royalties (2006 Order), directing Western Energy to pay additional royalties of $1,569,146.81 on coal produced and sold from the Rosebud Mine for the period from January 1, 2002, through December 31, 2004, for the same reasons as the 2002 Order. Western Energy appealed the 2006 Order to the MMS Director in Docket No. MMS-06-0056-COAL. On March 26, 2008, the Assistant Secretary for Land and Minerals Management issued a decision in MMS-06-0056-COAL affirming the 2006 Order in all respects (ASLM Decision). Subsequently, the ASLM Decision was added to the Litigation.

H. On September 25, 2008, MMS, based on an audit conducted by the State, issued a fourth Order, however because the issue in this order was the same as identified in the prior 3 Orders, MMS issued an Order to Perform Restructured Accounting and Pay Additional Royalties (2008 Order). The 2008 Order directed Western Energy to pay additional royalties of $ 1,363,274.88 on coal produced and sold from the Rosebud Mine for the period from January 1, 2005, through December 31, 2007, and to recalculate and pay additional royalties for the period January 2008 through August 2008. Western Energy appealed the 2008 Order to the MMS Director in Docket No. MMS-08-0194-COAL.

I. Collectively the 2002 Order, 2003 Order, 2006 Order, and 2008 Order are herein referred to as “the Orders.”

J. In addition to the time periods covered by the Orders, the Parties desire to resolve the issues in the Orders for the additional period from January 1, 1983, through September 30, 1991. Collectively the period from January 1, 1983, through December 31, 2007 is the “Settlement Period.”

K. The Parties also desire to reach an agreement on the transportation allowance deductions to be used by Western Energy in reporting and paying MMS royalties attributable to the transportation of Western Energy’s Coal to the Colstrip Plant after the Settlement Period.

AGREEMENT

THEREFORE, in consideration of the mutual promises and covenants set forth herein and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties to this Settlement Agreement hereby incorporate by reference and agree to the accuracy of the above recitals and further agree as follows:

1. Payment: Western Energy will pay MMS $12,239,538.22 within 10 days of Western Energy’s receipt of a fully executed copy of this Settlement Agreement. If Western Energy does not pay the $12,239,538.22 to MMS within 10 days of Western Energy’s receipt of a fully executed copy of this Settlement Agreement, Western Energy will pay late payment charges on the untimely payment at the rate established at 30 CFR § 218.202 (2007). Interest will start accruing on the 11th day after Western Energy received a fully executed copy of this Settlement Agreement, until the payment of $12,239,538.22 is made.

Exhibit 10.1

2. Provisions for Valuation of Production after December 31, 2007

A. For coal production from the Rosebud Mine to the Colstrip Plant beginning January 1, 2008, Western Energy agrees to report and pay MMS royalties using the transportation allowance methodology in the Orders.

B. For coal production from the Rosebud Mine to the Colstrip Plant beginning January 1, 2008, Western Energy will (i) adjust its MMS royalty payments to comply with the transportation allowance methodology in the Orders, and (ii) pay any additional royalty payment to MMS based upon that adjustment.

C. Western Energy will owe late payment interest on any additional royalty payment made under Paragraph 2.B. at the rate established at 30 CFR § 218.202 (2007).

3. Appeals: Within ten (10) business days from the date that MMS receives the payment referenced in Paragraph 1, the Parties will cause their respective counsel of record to file a stipulated motion to dismiss the Litigation with prejudice.

4. No Further Proceedings: Each Party agrees that it will not institute any legal or other proceedings to litigate, arbitrate, appeal, or attack in any fashion any demand or issue described herein and covered by this Settlement Agreement.

5. Reporting Requirements: Western Energy shall have no obligation to submit or revise a “Solid Minerals Production and Royalty Report, Form MMS-4430 with respect to the payment referenced in Paragraph 1. After MMS receives the payment referenced in Paragraph 1, MMS will prepare and file a Form MMS-4430 documenting receipt of that payment.

6. Record Retention: Subject to the record retention requirements of 30 CFR § 212.200, Western Energy is otherwise released from any record maintenance requirements for the issues described in the Order and settled herein.

7. General Mutual Release from Liability: The Department hereby releases and forever discharges Western Energy together with all officers, directors, and employees of Western Energy from any and all audits, claims, actions, suits, judgments, liabilities, demands, fees, obligations, or interest, whether known or unknown, associated with the Orders, the Litigation, and the issues in the Orders for the Settlement Period. Western Energy hereby releases and forever discharges the Department from any and all claims, actions, suits, judgments, liabilities, demands, fees, interest, or obligations, including claims for refund or credit for royalty or other payments made, whether known or unknown, associated with the Orders, the Litigation, and the issues in the Orders for the Settlement Period

8. No Admission of Liability: The Parties agree that nothing contained herein, and no actions taken by any Party hereto with regard to this Settlement Agreement, shall be construed as an admission by either Party of liability as to any of the matters settled. No action taken by any Party in effecting this Settlement Agreement may be used in any future or pending demand, administrative proceeding, litigation, or similar action involving any of the Parties, as an admission of liability in any respect.

Exhibit 10.1

9. Binding Release: The releases contained herein shall bind and inure to the benefit of the principals, agents, employees, related or affiliated entities, representatives, successors, and assigns of the Parties.

10. Authority: The Parties represent that the person executing this Settlement Agreement on each Party’s behalf has been duly authorized by all necessary and appropriate action to enter into this Settlement Agreement.

11. Entire Agreement and Modification: This Settlement Agreement is the entire agreement among the Parties, and no representation, warranties, other statements, or promises have been made by any Party to any other Party in connection with this Settlement Agreement. This Settlement Agreement may be amended or modified only by written agreement, executed by an authorized representative of each Party.

12. No Precedent Setting Value: It is specifically understood and agreed that this Settlement Agreement is executed for the sole purpose of settling the issues described herein. No Party shall be deemed to have approved, accepted, or consented to any concept, method, theory, principle, or statutory, regulatory, or contractual interpretation underlying or purportedly underlying, any of the matters agreed to herein or raised in connection with the issues settled herein. This Settlement Agreement shall have no precedent setting value and shall not be binding on any Party as to any issues, leases, or any time periods, other than those specifically addressed herein.

13. Fraud, Concealment, or Misrepresentation: Nothing herein shall ever prevent any Party from asserting and reopening any claim against another Party as to the royalty computations and payments which are the subject of this Settlement Agreement for reasons of fraud, malfeasance, concealment, or misrepresentation of material fact. The Parties agree that this Settlement Agreement specifically excludes any disputes or claims arising under the False Claims Act, 31 U.S.C. §§ 3729-3733. However, it is expressly understood that Western Energy denies any liability under the False Claims Act.

14. Legal Fees: Nothing in this Settlement Agreement shall be interpreted as giving any Party a claim for recovery of any legal costs or attorney’s fees. Each Party agrees that it will bear its own costs and expenses.

15. Construction of Agreement: Nothing in this or any other agreement shall be construed so as to deprive a Federal official of the authority to revise, amend, or promulgate regulations. Nor shall anything in this Settlement Agreement be construed to commit a Federal official to expend funds not appropriated by Congress. In no event, shall anything in this Settlement Agreement bar any Party from seeking judicial relief enforcing this Settlement Agreement in any court having jurisdiction over the Parties to, and the subject matter of this Settlement Agreement.

16. Counterparts: This Settlement Agreement may be executed in two or more counterparts; it shall not be necessary that the signatures of all Parties hereto be contained on any one counterpart and each counterpart shall constitute one and the same agreement. This Settlement Agreement may be executed by facsimile signatures, which shall be deemed originals for all purposes.

Exhibit 10.1

17. Effective Date: This Settlement Agreement will be effective when executed by all Parties.

IN WITNESS WHEREOF, the Parties have executed this Settlement Agreement as of the respective dates indicated with the signatures below:

Minerals Management Service		Western Energy Company
By:	/s/ Walter D. Cruickshank	By:	/s/ Morris W. Kegley
Title:	Director (Acting)	Title:	Vice President and General Counsel
Date:	5/07/09	Date:	December 24, 2008
United States Department of Justice
By:	/s/ Gregory Page
	Gregory Page, Esq.
Title:	Attorney
Date:	7/09/09

EX-10.2

Exhibit 10.2

SETTLEMENT AGREEMENT AND MUTUAL RELEASE

This Settlement Agreement and Mutual Release (Settlement Agreement) is made between Western Energy Company (Western), and the United States Department of the Interior (Department), through the Minerals Management Service (MMS). The above parties may be referred to individually as a “Party” or collectively as “Parties”.

RECITALS

A. Western owns interests in Lease Nos. M18-054712-0, M18-073109-0, M18-080697-0, and M18-0821860 (Leases) located in the Rosebud Mine in Rosebud County, Montana.

B. On April 29, 2004, MMS, through its Solid Minerals and Geothermal Compliance office (S&G CAM) issued an “Order to Pay Additional Royalties” (Order) directing Western to pay additional royalties of $1,063,211.77 for royalty underpayments due to an excessive price reduction for coal produced and sold to Puget Sound Energy, Inc. for the period of January 1, 1996, through December 31, 2001 (Audit Period). At the time the Order was issued, MMS had a policy paper in place limiting royalty collections actions to 7 years prior to the date any order was issued (7-year policy paper). Therefore, the amount of the Order did not seek additional royalties for the period January 1, 1996, through March 31, 1997, to adhere to the 7-year policy paper requirements.

C. Western timely appealed the Order, docketed as MMS-04-0028-COAL, on June 1, 2004 (Appeal).

D. On November 17, 2007, the MMS Director rescinded the 7-year policy paper.

E. By decision dated August 26, 2008, the MMS Associate Director for Policy and Appeals denied Western’s Appeal (Appeal Decision) and added the additional royalties owed for the period January 1996 through March 31, 1997, that was excluded under the Order. The revised amount assessed under the Appeal Decision was $1,132,789.65.

F. On September 30, 2008, MMS received notice that Western had appealed the Appeal Decision to the Interior Board of Land Appeals. That appeal is still pending and is docketed as IBLA 2009-28 (IBLA Appeal).

G. Western and the Department desire to reach full and final settlement of the Order and associated interest for the Audit Period.

AGREEMENT

THEREFORE, in consideration of the mutual promises and covenants set forth herein and other valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties to this Settlement Agreement hereby incorporate by reference and agree to the accuracy of the above recitals and further agree as follows:

Exhibit 10.2

2. Payment: Western will pay MMS $1,344,821.94 within 10 days of Western’s receipt of a fully executed copy of this Settlement Agreement. If Western does not pay the $1,344,821.94 to MMS within 10 days of Western’s receipt of a fully executed copy of this Settlement Agreement, Western will pay late payment charges on the untimely payment at the rate established at 30 CFR § 218.54 (2008). Interest will start accruing on the 11^th day after Western received a fully executed copy of this Settlement Agreement, until the payment of $1,344,821.94 is made.

3. Appeal: Western agrees to withdraw its IBLA Appeal, with prejudice, within 10 days of its receipt of a fully executed copy of this Settlement Agreement.

4. No Further Proceedings: Each Party agrees that it will not institute any legal or other proceedings to litigate, arbitrate, appeal, or attack in any fashion any demand or issue described herein and covered by this Settlement Agreement.

5. Reporting Requirements: Western shall have no obligation to submit or revise a Solid Minerals Production and Royalty Report, Form MMS-4430 with respect to the payment referenced in Paragraph 1. After MMS receives the payment referenced in Paragraph 1, MMS will prepare and file a Form MMS-4430 documenting receipt of that payment.

5. Record Retention: Subject to the record retention requirements at 30 CFR § 212.200, Western is otherwise released from any record maintenance requirements for the issues described in the Order and settled herein.

6. General Mutual Release from Liability: The Department hereby releases and forever discharges Western together with all officers, directors, and employees of Western from any and all audits, claims, actions, suits, judgments, liabilities, demands, fees, obligations, or interest, whether known or unknown, associated with the Order. Western hereby releases and forever discharges the Department from any and all claims, actions, suits, judgments, liabilities, demands, fees, interest, or obligations, including claims for refund or credit for royalty or other payments made, whether known or unknown, associated with the Order.

7. No Admission of Liability: The Parties agree that nothing contained herein, and no actions taken by any Party hereto with regard to this Settlement Agreement, shall be construed as an admission by either Party of liability as to any of the matters settled. No action taken by any Party in effecting this Settlement Agreement may be used in any future or pending demand, administrative proceeding, litigation, or similar action involving any of the Parties, as an admission of liability in any respect.

8. Binding Release: The releases contained herein shall bind and inure to the benefit of the principals, agents, employees, related or affiliated entities, representatives, successors, and assigns of the Parties.

Exhibit 10.2

9. Authority: The Parties represent that the person executing this Settlement Agreement on each Party’s behalf has been duly authorized by all necessary and appropriate action to enter into this Settlement Agreement.

10. Entire Agreement and Modification: This Settlement Agreement is the entire agreement among the Parties, and no representation, warranties, other statements, or promises have been made by any Party to any other Party in connection with this Settlement Agreement. This Settlement Agreement may be amended or modified only by written agreement, executed by an authorized representative of each Party.

11. No Precedent Setting Value: It is specifically understood and agreed that this Settlement Agreement is executed for the sole purpose of settling the issues described herein. No Party shall be deemed to have approved, accepted, or consented to any concept, method, theory, principle, or statutory, regulatory, or contractual interpretation underlying or purportedly underlying, any of the matters agreed to herein or raised in connection with the issues settled herein. This Settlement Agreement shall have no precedent setting value and shall not be binding on any Party as to any issues, leases, or any time periods, other than those specifically addressed herein.

12. Fraud, Concealment, or Misrepresentation: Nothing herein shall ever prevent any Party from asserting and reopening any claim against another Party as to the royalty computations and payments which are the subject of this Settlement Agreement for reasons of fraud, malfeasance, concealment, or misrepresentation of material fact. The Parties agree that this Settlement Agreement specifically excludes any disputes or claims arising under the False Claims Act, 31 U.S.C. §§ 3729-3733. However, it is expressly understood that Western denies any liability under the False Claims Act.

13. Legal Fees: Nothing in this Settlement Agreement shall be interpreted as giving any Party a claim for recovery of any legal costs or attorney’s fees. Each Party agrees that it will bear its own costs and expenses.

14. Construction of Agreement: Nothing in this or any other agreement shall be construed so as to deprive a Federal official of the authority to revise, amend, or promulgate regulations. Nor shall anything in this Settlement Agreement be construed to commit a Federal official to expend funds not appropriated by Congress. In no event, shall anything in this Settlement Agreement bar any Party from seeking judicial relief enforcing this Settlement Agreement in any court having jurisdiction over the Parties to, and the subject matter of this Settlement Agreement.

15. Counterparts: This Settlement Agreement may be executed in two or more counterparts; it shall not be necessary that the signatures of all Parties hereto be contained on any one counterpart and each counterpart shall constitute one and the same agreement. This Settlement Agreement may be executed by facsimile signatures, which shall be deemed originals for all purposes.

16. Effective Date: This Settlement Agreement will be effective when executed by all Parties.

Exhibit 10.2

IN WITNESS WHEREOF, the Parties have executed this Settlement Agreement as of the respective dates indicated with the signatures below:

United States Department of the Interior			Western Energy Company
Minerals Management Service
By:	/s/ Walter D. Cruickshank	By:	/s/ Doug Kathol
	Acting Director
	Minerals Management Service	Title:	VP
Date:	7/09/09	Date:	6/24/09