Blue Diamond Coal Co., In re

• Decision Date: 28 June 1996
• Docket Number: No. 94-6539,94-6539
• Parties: In re BLUE DIAMOND COAL COMPANY, Debtor. BLUE DIAMOND COAL COMPANY, Plaintiff-Appellant, v. SECRETARY OF HEALTH AND HUMAN SERVICES, Donna E. Shalala; United Mine Workers of America, Combined Benefit Fund, Michael H. Holland, William Hobgood, Marty D. Hudson, Thomas O.S. Rand, Elliott A. Segal, Carlton R. Sickles, and Gail R. Wilensky, Trustees, Defendants-Appellees.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 516

79 F.3d 516

In re BLUE DIAMOND COAL COMPANY, Debtor.

BLUE DIAMOND COAL COMPANY, Plaintiff-Appellant, v. SECRETARY OF HEALTH AND HUMAN SERVICES, Donna E. Shalala;

United Mine Workers of America, Combined Benefit Fund,

Michael H. Holland, William Hobgood, Marty D. Hudson, Thomas

O.S. Rand, Elliott A. Segal, Carlton R. Sickles, and Gail R.

Wilensky, Trustees, Defendants-Appellees.

No. 94-6539.

United States Court of Appeals, Sixth Circuit.

Argued Dec. 8, 1995.

Decided March 21, 1996.

Rehearing and Suggestion for Rehearing En Banc Denied June 28, 1996.

On Appeal from the United States District Court for the Eastern District of Tennessee; Thomas Gray Hull, Judge.

Dan D. Rhea and Lewis R. Hagood (argued and briefed), Arnett, Draper & Hagood, Knoxville, TN, for Plaintiff-Appellant.

Pamela G. Steele, Asst. U.S. Attorney, Knoxville, TN, Scott R. McIntosh (argued and briefed), Appellate Staff, Brian G. Kennedy, William Kanter, U.S. Department of Justice, Civil Division, Appellate Staff, Washington, DC, for Secretary of Health and Human Services.

Peter Buscemi (argued and briefed), Jami Wintz McKeon, Morgan, Lewis & Bockius, Washington, DC, David W. Allen, UMWA Health & Retirement Funds, Office of the General Counsel, Washington, DC, George W. Morton, Jr., Morton, Thomforde & Morton, Knoxville, TN, Paul A. Green, Beins, Axelrod, Osborne, Mooney & Green, Washington, DC, for United Mine Workers of America, Combined Benefit Fund.

Before BROWN, SILER and MOORE, Circuit Judges.

MOORE, Circuit Judge.

Plaintiff-Appellant Blue Diamond Coal Company ("Blue Diamond") appeals the district court's order granting summary judgment to Defendants-Appellees Donna E. Shalala, Secretary of Health and Human Services (the "Secretary"), and the Trustees of the United Mine Workers of America Combined Benefit Fund (the "Trustees"). Blue Diamond argues that application of the Coal Industry Retiree Health Benefit Act of 1992, 26 U.S.C. §§ 9701-9722 & 30 U.S.C. §§ 1231-1232 (the "Coal Act"), to Blue Diamond violates substantive due process and is an uncompensated taking. For the reasons stated below, we affirm.

I

The Coal Act is the culmination of a long history of federal involvement in coal industry labor issues. That involvement began in 1946, when a prolonged coal strike occurred. The federal government took over the operation of the nation's coal mines and entered into an agreement with the United Mine Workers of America ("UMWA"). That agreement, called the Krug-Lewis Agreement, included provisions that required coal producers to provide health and pension benefits to their workers. In 1947, after the mines were returned to their owners, a group of coal producers called the Bituminous Coal Operators' Association, Inc. ("BCOA"), entered into the first National Bituminous Coal Wage Agreement ("NBCWA") collective bargaining agreement with the UMWA. Blue Diamond, although it was not a BCOA member agreed to be bound by the NBCWA. In that agreement and subsequent agreements, the coal producers agreed to contribute a per-ton royalty to a fund, similar to the fund established in the Krug-Lewis Agreement, that would pay health benefits and pensions to miners (the "UMWA Fund"). Health benefits were not vested or guaranteed in these early agreements, and the coal producers were not obligated to the UMWA Fund beyond payment of their assigned royalties. However, the UMWA Fund paid health benefits to miners continuously for more than 30 years.

In 1974, the UMWA Fund was restructured in the wake of the passage of the Employee Retirement Income Security Act of 1974 ("ERISA"), 29 U.S.C. §§ 1001-1461. The UMWA Fund was divided into two funds, the 1950 UMWA Benefit Plan and the 1974 UMWA Benefit Plan (the "1974 Funds"). For the first time, the 1974 NBCWA contained an explicit promise of lifetime health benefits. The 1974 Funds soon became financially unstable, however, due to a combination of factors. First, many coal producers either went out of business or became non-union, and thus ceased contributing to the 1974 Funds. Second, many miners reached retirement age. Third, health care costs continued to increase. In 1989, the UMWA initiated a 10-month strike against the Pittston Coal Company over retiree benefits, which was settled only with federal intervention. After the Pittston strike was settled, the Secretary of Labor appointed the Advisory Commission on United Mine Workers of America Retiree Health Benefits (the "Coal Commission") to study the problems with the 1974 Funds and to propose solutions. The Coal Commission's report was presented to Congress, along with other information, during Congress's deliberations over a legislative solution to the 1974 Funds' problems.

To solve the 1974 Funds' problems, Congress enacted the Coal Act in 1992. Congress's stated purpose for enacting the Coal Act was "... to identify persons most responsible for plan liabilities in order to stabilize plan funding and allow for the provision of health care benefits to retirees." Coal Industry Retiree Health Benefit Act of 1992, Pub.L. No. 102-486, § 19142, 1992 U.S.C.C.A.N. (106 Stat.) 3036, 3037. The Coal Act requires all past coal operator NBCWA signatories to finance the benefits to be paid by the "Combined Fund," which the Coal Act created by consolidating the 1974 Funds. 26 U.S.C. §§ 9701(a)(5), 9702, 9704, 9705. Under the Coal Act, the Secretary must identify retired coal miners and their dependents who were entitled to health care benefits under the 1974 Funds and must assign those beneficiaries to NBCWA signatory coal operators that remain in business on the basis of the operators' contractual obligations under the NBCWAs. 26 U.S.C. § 9706. "Eligible beneficiaries" under the Coal Act are coal industry retirees and their dependents who were eligible to receive, and receiving, benefits from either of the 1974 Funds. 26 U.S.C. § 9703(f). The Secretary first must assign eligible beneficiaries to coal mine operators that most recently employed the beneficiaries for at least two years, and were signatories to 1978 or later NBCWAs. 26 U.S.C. § 9706(a)(1). If no such operator exists for a particular beneficiary, the Secretary must assign the beneficiary to an operator that most recently employed the beneficiary and was a signatory to the 1978 or later NBCWAs. 26 U.S.C. § 9706(a)(2). If no such operator exists for a particular beneficiary, the beneficiary must be assigned to a pre-1978 signatory operator, such as Blue Diamond, that employed the beneficiary for the longest period of time. 26 U.S.C. § 9706(a)(3). For each beneficiary assigned to it, the coal mine operator must pay a premium to the Combined Fund. 26 U.S.C. § 9704(a).

The Secretary also must assess each NBCWA signatory operator for that operator's proportional share of "orphan" retirees. 26 U.S.C. § 9704(d). "Orphan" retirees, which the Coal Act refers to as "unassigned beneficiaries," are those eligible beneficiaries who cannot be assigned pursuant to any provision of § 9706(a) because their employers have gone out of business. See 26 U.S.C. §§ 9703(f), 9704(d). Each coal mine operator's share of the liability for orphan retirees is proportional to the number of beneficiaries assigned to that operator under § 9706(a) of the Coal Act. Each operator's "applicable percentage" of beneficiaries is determined by dividing the number of beneficiaries assigned under § 9706(a) to that operator by the total number of beneficiaries assigned to all operators under the Coal Act. U.S.C. § 9704(f)(1). Then, the operator is assessed premiums for a percentage of the orphan retirees that is equal to the operator's "applicable percentage" of assigned beneficiaries. 26 U.S.C. § 9704(d). Finally, the Coal Act contains provisions for transfer to the Combined Fund of surplus funds from the 1950 UMWA Pension Plan and the Abandoned Mine Reclamation Fund to mitigate the operators' liability for orphan retirees. 26 U.S.C. § 9705(a)(3), (b).

Blue Diamond, a coal mining company located in Knoxville, Tennessee, is a reorganized debtor under Chapter 11 of the Bankruptcy Code. Blue Diamond has been in the coal mining business for more than 50 years. Until 1964, Blue Diamond employed miners who were members of the UMWA, and the company agreed to be bound by the NBCWA collective bargaining agreements between coal producers and the UMWA. Pursuant to those NBCWAs, Blue Diamond contributed per-ton royalties to the then-existing UMWA Fund. In 1964, Blue Diamond stopped employing union miners and terminated its obligations to the UMWA Fund. Blue Diamond has continued to mine coal since 1964 with non-UMWA miners.

The bulk of the 1400 living beneficiaries assigned to Blue Diamond (or their decedents) worked for the company at some point in their careers but retired from other employers. Blue Diamond First Amended Complaint at 7-8, J.A. at 14; Declaration of Donald Pierce at 8, J.A. at 364. Approximately 74 of Blue Diamond's assigned beneficiaries were retired and receiving benefits from the UMWA Fund when Blue Diamond switched to non-union labor in 1964. Id. Blue Diamond alleges that its Coal Act premiums will total $4.9 million in the first year, and that the premiums to be paid over the life of the Act have a present value of $25 million.

Blue Diamond sued the Secretary and the Trustees in May 1993, alleging that imposing the liabilities required by the Coal Act on Blue Diamond violated substantive due process and was an uncompensated, and therefore unconstitutional, taking of Blue Diamond's property. The district court granted summary judgment to the Secretary and the Trustees, In re Blue Diamond Coal Co., 174 B.R. 722 (E.D.Tenn.1994), and Blue Diamond timely appealed.

II

This court reviews the district court's grant of summary judgment de novo. Coffey v. Foamex L.P., 2 F.3d 157, 159 (6th Cir.1993). Three circuit courts, including the Sixth Circuit, and several district courts have considered challenges to the...