53 F.3d 478 (2nd Cir. 1995), 81, In re Chateaugay Corp.

Docket Nº:81, Docket 94-6024.
Citation:53 F.3d 478
Party Name:In re CHATEAUGAY CORPORATION; Reomar, Inc.; LTV Corporation, Debtors. LTV STEEL COMPANY, INC.; BCNR Mining Corporation; Nemacolin Mines Corporation; Tuscaloosa Energy Corporation, Appellants, v. Donna E. SHALALA, Secretary, Department of Health and Human Services; Marty D. Hudson, Thomas O.S. Rand, Elliot A. Segal, Carlton R. Sickles, Gail R. Wilen
Case Date:April 17, 1995
Court:United States Courts of Appeals, Court of Appeals for the Second Circuit

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53 F.3d 478 (2nd Cir. 1995)


Corporation, Debtors.

LTV STEEL COMPANY, INC.; BCNR Mining Corporation;

Nemacolin Mines Corporation; Tuscaloosa Energy

Corporation, Appellants,


Donna E. SHALALA, Secretary, Department of Health and Human

Services; Marty D. Hudson, Thomas O.S. Rand, Elliot A.

Segal, Carlton R. Sickles, Gail R. Wilensky, Ph.D., Michael

H. Holland, William P. Hobgood, as Trustees of the United

Mine Workers of America Combined Benefit Fund; and United

Mine Workers of America Combined Benefit Fund, Appellees.

No. 81, Docket 94-6024.

United States Court of Appeals, Second Circuit

April 17, 1995

Argued Dec. 1, 1994.

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[Copyrighted Material Omitted]

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Karen E. Wagner, Davis Polk & Wardwell, New York City (Donald B. Ayer, Jones, Day, Revis & Pogue, Washington, DC, of counsel), for appellants.

Edward A. Smith, Asst. U.S. Atty., S.D.N.Y., New York City (Mary Jo White, U.S. Atty., Frank W. Hunger, Asst. U.S. Atty., S.D.N.Y., of counsel), and Jami W. McKeon, Peter Buscemi, Morgan, Lewis & Bockius, Washington, DC (Paul A. Green, John R. Mooney, Beins, Axelrod, Osborne, Mooney & Green, P.C., David W. Allen, Office of the Gen. Counsel, UMWA Health and Retirement Funds, of counsel), for appellees.

Before: MAHONEY, McLAUGHLIN and HEANEY, [*] Circuit Judges.

HEANEY, Senior Circuit Judge:

LTV Steel Company, Inc. ("LTV Steel"), and three wholly owned subsidiaries, BCNR Mining Corporation, Nemacolin Mines Corporation and Tuscaloosa Energy Corporation (collectively, with LTV Steel, "LTV"), appeal from a judgment of the district court encompassing two separate decisions. The first decision held that LTV's obligations under the Coal Industry Retiree Health Benefit Act of 1992 ("Coal Act"), Pub.L. No. 102-486, 106 Stat. 2776, 3036-3056, were not pre-petition claims that must be disallowed under Chapter 11 of the Bankruptcy Code. In re Chateaugay Corp., 154 B.R. 416 (S.D.N.Y.1993).

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The second decision rejected LTV's Due Process and Takings Clause attacks on the constitutionality of the Coal Act. In re Chateaugay Corp., 163 B.R. 955 (S.D.N.Y.1993). We affirm.


The roots of this controversy stretch back to 1946, when the United Mine Workers of America ("UMWA") launched a strike over the issue of health and pension benefits. When labor/management negotiations collapsed, President Truman invoked his powers under the War Labor Disputes Act and ordered Secretary of the Interior Julius A. Krug to take possession of the nation's mines for one year. See Exec. Order No. 9728, 11 Fed.Reg. 5593 (1946); see also Exec. Order No. 9758, 11 Fed.Reg. 7927 (1946). Seeking a rapid resumption of production at the idled mines, Krug negotiated with UMWA President John L. Lewis to establish terms and conditions for the period of government control. The resulting Krug-Lewis Agreement established an unprecedented system for providing health and pension benefits to workers at the center of which stood two separate, industry-wide benefit funds. The first, the Welfare and Retirement Fund, was financed by a flat five-cent fee levied on each ton of mined coal and was jointly governed by representatives of the UMWA and the federal government. The second, the Medical and Hospital Fund, depended solely on miner-approved wage deductions and was administered by trustees appointed by the UMWA. The following year, the UMWA and the major mining companies agreed to make permanent the existence of the funds, though in different form. Marking the return of the mines to their corporate owners, the National Bituminous Coal Wage Agreement of 1947 merged the two Krug-Lewis funds into a single entity, the United Mine Workers of America Welfare and Retirement Fund. Perhaps unavoidably, various disputes between the UMWA and the coal operators accompanied the new fund's first several years of operation, generating labor unrest and periodic strikes.

In 1950, a successor National Bituminous Coal Wage Agreement ("NBCWA") was negotiated by the UMWA and the Bituminous Coal Operators Association ("BCOA"), a newly formed multiemployer association of major coal companies. 1 The 1950 Wage Agreement ushered in a two-decade era of labor/management cooperation in the coal industry. In exchange for union acquiescence in the mechanization of mines, the mining companies that signed the 1950 Wage Agreement ("signatory operators") agreed to establish the United Mine Workers Welfare and Retirement Fund of 1950 ("1950 W & R Fund"), an irrevocable trust funded on a pay-as-you-go basis. As provided in the 1950 Wage Agreement, the purpose of the 1950 W & R Fund was to provide "benefits to employees of [signatory] Operators, their families and dependents for medical or hospital care, pensions on retirement or death of employees, compensation for injuries or illness ... [and] benefits on account of sickness, temporary disability, permanent disability, death or retirement." 1950 Wage Agreement, at 136. 2 The UMWA and the BCOA each named one trustee of the 1950 W & R Fund; those two in turn mutually agreed upon a third, neutral trustee. The trustees exercised sole discretion over the specific nature of the benefits provided by the 1950 W & R Fund. The 1950 Wage Agreement obligated signatory operators to contribute to the 1950 W & R Fund thirty cents per ton of coal mined throughout the life of the agreement.

Until 1971, the successor NBCWAs and related amendments left essentially untouched the operation of the 1950 W & R

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Fund. 3 The 1971 Wage Agreement removed from the 1950 W & R Fund's trustees the discretion to set benefit levels, vesting the power instead in the hands of the UMWA and the BCOA. Consequently, the scope and operation of the 1950 W & R Fund again became the central issue of the collective bargaining process. The negotiations over the 1974 Wage Agreement generated the first major overhaul of the miners' health and pension benefit delivery scheme. In the wake of court-ordered administrative reforms, see Lamb v. Carey, 498 F.2d 789 (D.C.Cir.1974), cert. denied, 419 U.S. 869, 95 S.Ct. 128, 42 L.Ed.2d 108 (1974), and Blankenship v. Boyle, 329 F.Supp. 1089 (D.D.C.1971), aff'd, 511 F.2d 447 (D.C.Cir.), cert. denied, 419 U.S. 869, 95 S.Ct. 128, 42 L.Ed.2d 108 (1974), significant demographic changes in the population of active and retired miners, and Congress's enactment of the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. Sec. 1001 et seq., the UMWA and BCOA determined that sweeping changes in the 1950 W & R Fund's administrative mechanisms were necessary. First, the 1974 Wage Agreement divided pension from nonpension benefit funds. The signatory operators' pension obligations under the 1950 W & R Fund were transferred to a new entity known as the UMWA 1950 Pension Trust. Nonpension benefits such as health care were transferred to two separate entities: the UMWA 1950 Benefit Plan and Trust ("1950 Benefit Trust") and the UMWA 1974 Benefit Plan and Trust ("1974 Benefit Trust"). The 1950 Benefit Trust covered those who retired prior to January 1, 1976; the 1974 Benefit Trust covered later retirees. Because the 1950 Pension Trust received all of the assets of the 1950 W & R Fund, the 1950 and 1974 Benefit Trusts began with a zero funding base. BCOA members and other signatories to the 1974 Wage Agreement committed to fund the 1950 and 1974 Benefit Trusts on the basis of cumulative hours worked, rather than tons of coal mined.

Second, and perhaps most significantly, the 1974 Wage Agreement included an explicit promise that health benefits would be provided to covered retired miners, their spouses, and certain dependents for life. For example, the 1974 Wage Agreement provision for past retirees stated:

Any pensioned miner covered in this Plan will retain his Health Services card until death, and upon his death his widow will retain a Health Services card until her death or remarriage.

1974 Wage Agreement, at 99; JA 247. 4 Virtually identical language was applied to future retirees and their widows, disabled miners and their widows, and disabled or retarded children. Id. at 99, 101, 103, 105, 106; JA 247, 248, 249, 250, 251. The 1978 Wage Agreement and its successors contained even more explicit language, providing that a miner with at least twenty years of service was "entitled to receive health benefits until death," and "entitled to retain his Health Services Card for life," and that, after the miner's death, his widow was "entitled to receive health benefits until her death or remarriage." 1978 Wage Agreement, at 116, 117, 119, 120; JA 278, 279. Again, similar language applied to disabled miners and their dependents and to disabled and retarded children. Id. at 119, 125; JA 279, 282.

Ironically, the 1978 negotiations between the UMWA and BCOA resulted in the partial dismantling of the 1974 benefit scheme. In simplest terms, the parties agreed to shift from a centralized multiemployer benefit trust to a decentralized scheme in which each signatory operator established and financed its own individual health benefit delivery plan. Each post-1975 retiree was assigned to the single-employer plan operated by his or her last employer. Pre-1976 retirees continued to receive their benefits from the multiemployer 1950 Benefit Trust. The 1974 Benefit Trust was also retained, but with the sharply limited mission of providing health benefits to the so-called "orphans": UMWA retirees whose last employer had gone out of

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business. The mining companies assumed the burden of providing for the "orphaned" retirees as an industry-wide responsibility.

Unlike the prior NBCWAs, the 1978 Wage Agreement contained a so-called "guarantee" clause:

Guarantee of 1950 Plans and Trusts and 1974 Plans and Trusts

Notwithstanding any other provisions in this Agreement the Employers...

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