Davon, Inc. v. Shalala

• Citation: 75 F.3d 1114
• Decision Date: 25 January 1996
• Docket Number: 95-2306,Nos. 95-1960,s. 95-1960
• Parties: 19 Employee Benefits Cas. 2735 DAVON, INC., Templeton Coal Co., Inc., Sherwood-Templeton Coal Co., Inc., Princeton Mining Co., Inc., and Berwind Corp., Plaintiffs-Appellants, v. Donna E. SHALALA, Secretary, United States Department of Health and Human Services, and United Mine Workers of America Combined Benefit Fund, and its Trustees, Marty D. Hudson, et al., Defendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

Page 1114

75 F.3d 1114

19 Employee Benefits Cas. 2735

DAVON, INC., Templeton Coal Co., Inc., Sherwood-Templeton Coal Co., Inc., Princeton Mining Co., Inc., and Berwind Corp., Plaintiffs-Appellants, v. Donna E. SHALALA, Secretary, United States Department of Health and Human Services, and United Mine Workers of America Combined Benefit Fund, and its Trustees, Marty D Hudson, et al., Defendants-Appellees.

Nos. 95-1960, 95-2306.

United States Court of Appeals Seventh Circuit.

Argued Nov. 3, 1995.

Decided Jan. 25, 1996.

Appeal from the United States District Court for the Southern District of Indiana, Terre Haute Division, Nos. 93 C 158 and 93 C 198; John D. Tinder, Judge.

Louis F. Britton, Cox, Zwerner, Gambill & Sullivan, Terre Haute, IN, John W. Fischer (argued), Denlinger, Rosenthal & Greenberg, Cincinnati, OH, for Davon, Inc.

Jill E. Zengler, Office of the United States Attorney, Indianapolis, IN, Donna Morros Weinstein, Department of Health and Human Services, Region V, Office of the General Counsel, Chicago, IL, Douglas Letter, Scott R. McIntosh (argued), Department of Justice, Civil Division, Appellate Section, Washington, DC, Gretchen E. Jacobs, Department of Justice, Washington, DC, for Donna E. Shalala.

Frederick W. Dennerline, III, Edward J. Fillenwarth, Jr., Fillenwarth, Dennerline, Groth & Towe, Indianapolis, IN, Peter Buscemi (argued), Dean C. Berry, Morgan, Lewis & Bockius, Washington, DC, John R. Mooney, Elizabeth A. Saindon, Edward M. Gleason, Jr., Beins, Axelrod, Osborne, Mooney & Greene, Washington, DC, for United Mine Workers of America Combined Benefit Fund.

David H. Goeller, Wilkinson, Goeller, Modesitt, Wilkinson & Drummy, Terre Haute, IN, Rosemary M. Collyer, J. Michael Klise, Michael A. Bazany, Jr., Crowell & Moring, Washington, DC, Jesse H. Choper (argued), University of California, Berkeley, CA, for Templeton Coal Co., Inc., Sherwood-Templeton Coal Co., Inc., Princeton Mining Co., Inc., and Berwind Corp.

Edward J. Fillenwarth, Jr., Fillenwarth, Dennerline, Groth & Towe, Indianapolis, IN, (argued), Peter Buscemi Morgan, Lewis & Bockius, Washington, DC, John R. Mooney, Elizabeth A. Saindon, Edward M. Gleason, Jr., Beins, Axelrod, Osborne, Mooney & Greene, Washington, DC, for Marty D. Hudson, Michael Holland, Elliot A. Segal, Thomas O.S. Rand, Carlton R. Sickles, Gail R. Willensky, and William P. Hobgood.

Before CUMMINGS, CUDAHY and KANNE, Circuit Judges.

CUMMINGS, Circuit Judge.

This case involves challenges to the constitutionality of the Coal Industry Retiree Health Benefit Act of 1992, 26 U.S.C. §§ 9701 et seq. ("Coal Act"). Congress enacted the Coal Act to guarantee that retired coal miners and their families would receive health benefits for life. The Act was passed in response to a financial crisis that threatened the viability of the existing health benefit arrangement between miners and mining companies as well as the overall stability of the coal industry. The source of the financial crisis was simple: too many beneficiaries under the industry-wide health benefit plan and too few contributing employers. Thus when Congress passed the Coal Act, it mandated that all current and former coal operators contribute to a combined fund on a proportionate basis, including former coal operators that had not signed a collective bargaining agreement for health benefits since 1950. Plaintiffs in this case are five such former coal operators. None is presently in the coal industry and most have not mined coal for at least thirty years. All are required to pay premiums under the Coal Act because, at a minimum, they each signed a collective bargaining agreement in 1950. Plaintiffs argue that the reach-back financing provision of the Act is unconstitutional as applied to them under both the Due Process Clause and the Takings Clause of the Fifth Amendment. The district court disagreed and entered summary judgment against plaintiffs. We now affirm.

I.

The following is a relatively brief factual background to the present controversy. More exhaustive accounts are available. See In re Chateaugay Corp., 53 F.3d 478, 481-486 (2d Cir.1995), certiorari denied, --- U.S. ----, 116 S.Ct. 298, 133 L.Ed.2d 204; Templeton Coal Co. v. Shalala, 882 F.Supp. 799, 805-810 (S.D.Ind.1995); Barrick Gold Exploration, Inc. v. Hudson, 823 F.Supp. 1395, 1398-1401 (S.D.Ohio 1993).

A. Background to the Coal Act

The Coal Act is Congress's solution to a national health benefit problem long in the making. In 1946, the United Mine Workers of America ("UMWA") staged a nationwide strike over the refusal of coal operators to create a health and retirement fund. President Truman nationalized the coal mines and ordered negotiations with the Secretary of the Interior. The result was a collective bargaining agreement known as the "Krug-Lewis Agreement" that established a broad outline for employer-sponsored health and welfare programs. The coal mines were returned to private control in 1947, and the first in a series of National Bituminous Coal Wage Agreements ("NBCWAs") between the UMWA and the Bituminous Coal Operators Association, Inc. ("BCOA"), a multi-employer association of coal producers, was agreed upon. NBCWAs governed the terms and conditions of employment in coal mines operated by BCOA members, as well as non-BCOA "me too" operators that agreed to be bound by the terms of the NBCWAs.

The 1950 NBCWA established the United Mine Workers of America Welfare and Retirement Fund of 1950 ("1950 W & R Fund"), which succeeded the then-governing 1947 UMWA Welfare and Retirement Fund. The 1950 W & R Fund was intended to provide benefits to working and unemployed miners, their spouses and dependent children under age 18, retired miners and their spouses, widows of deceased miners, and relatives of deceased miners who cared for the miners' orphaned children. The program included the payment of unlimited hospitalization and in-hospital medical care as well as disability, death, or retirement benefits. Signatory coal operators contributed to the Fund on a per-ton royalty basis at rates specified in successive NBCWAs or amendments. Trustees of the Fund retained discretion over the amount and nature of benefits to be paid. ¹ The Fund was the exclusive provider of health, pension, and other welfare benefits for UMWA active and retired miners and their dependents, and its operation remained essentially unchanged from 1950 through 1974. ²

In 1974, the BCOA and the UMWA agreed to divide the 1950 W & R Fund into four separate multi-employer plans: two for pension benefits and two for other benefits. This was largely in response to the enactment of the Employee Retirement Income Security Act of 1974, 29 U.S.C. §§ 1001 et seq. ("ERISA"), which mandated that pension plans be fully funded on an actuarial basis. The two non-pension plans were known as 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 provided health benefits to miners who retired before 1976 and their dependents, while the 1974 Benefit Trust provided health benefits to miners who were active, or who retired on or after January 1, 1976, and their dependents.

Economic difficulties that ultimately led to the Coal Act surfaced in the late 1970s. Several factors caused the restructuring of the UMWA Benefit Trusts in 1978, including a significant reduction in the amount of coal produced under the NBCWAs, the retirement of a generation of miners, the rapid escalation of health care costs, and the steady increase in the number of "orphan" retirees--those whose employers either had gone out of business or had switched to non-UMWA labor. After a 111-day strike and tense negotiations, the UMWA and BCOA agreed to what would be the last restructuring of the UMWA benefit trusts. The 1978 NBCWA continued the multi-employer approach for providing health care benefits to persons who retired before January 1, 1976, but it provided that persons who retired on or after that date would receive health care benefits from single-employer plans maintained by the retirees' "last NBCWA signatory employer." The 1974 Benefit Trust was retained for miners who retired on or after January 1, 1976, and whose last signatory employers were no longer in business. The 1978 NBCWA also added "guarantee" and "evergreen" clauses, which obligated signatory operators to make sufficient contributions to ensure benefits and to continue making contributions after the expiration of the NBCWA.

The basic trust structure was maintained by subsequent NBCWAs in the 1980s, but economic difficulties continued and worsened. By 1990, the UMWA Benefit Trusts had incurred debts of over $100 million, and their funding from coal producers was decreasing faster than the beneficiary population. The crisis led to a 10-month strike at the Pittston Coal Company and threatened the stability of coal production as well as the economies of coal-producing states. As part of the settlement of the Pittston strike, the Secretary of Labor established the Advisory Commission on United Mine Workers of America Retiree Health Benefits ("Coal Commission") to make recommendations to assure the long-term viability of the 1950 and 1974 Benefit Trusts.

The Coal Commission issued its report in November 1990, documenting the financial crisis of the UMWA Benefit Trusts and stating that the primary culprit was the escalating cost of paying for "orphan" retirees whose last NBCWA signatory employer had either left the coal business or was otherwise not a contributing coal producer. The Commission made findings and recommendations as follows: (1) that retired miners are entitled to health care benefits that were promised them and that such commitments must be honored; (2) that a statutory obligation to contribute to the trusts should be imposed on current and former signatories to NBCWAs; and (3) that mechanisms should be enacted to prevent the future...