In re Mission Coal Co.
| Decision Date | 01 March 2019 |
| Docket Number | Case No. 18-04177-TOM11 |
| Parties | In re: MISSION COAL COMPANY, LLC, et al., Debtors. |
| Court | U.S. Bankruptcy Court — Northern District of Alabama |
(Jointly Administered)
This case came before the Court for hearing on February 20, 21, and 22, 2019 on Debtors' Motion for Entry of an Order (I) Authorizing, but Not Directing, the Debtors to (A) Reject Their Collective Bargaining Agreements, (B) Modify Certain Union-Related Retiree Benefits, and (C) Implement Terms of Their Section 1113 and Section 1114 Proposal, and (II) Granting Related Relief [Docket No. 635] (the "Section 1113/1114 Motion"), filed on January 31, 2019, by Mission Coal Company, LLC and its debtor affiliates, as debtors and debtors in possession in the above-captioned chapter 11 cases (collectively, the "Debtors"); the United Mineworkers of America's Objection to Debtors' Motion for Entry of an Order (I) Authorizing, but Not Directing, the Debtors to (A) Reject Their Collective Bargaining Agreements, (B) Modify Certain Union-Related Retiree Benefits, and (C) Implement Terms of Their Section 1113 and Section 1114 Proposal, and (II) Granting Related Relief [Docket No. 797]; the Objection of the United Mine Workers of America 1974 Pension Plan and Trust and the United Mine Workers of America 1993 Benefit Plan to the Debtors' Motion for Entry of an Order (I) Authorizing, but Not Directing, the Debtors to (A) Reject Their Collective Bargaining Agreements, (B) Modify Certain Union-Related Retiree Benefits, and (C) Implement Terms of Their Section 1113 and Section 1114 Proposal, and (II) Granting Related Relief [Docket No. 801]; and the United Mineworkers of America's Amended Supplemental Objection to Debtors' Motion [Dkt. No. 635] for Entry of an Order Authorizing the Debtors to Reject Their Collective Bargaining Agreements [Docket No. 851]. Appearances of counsel were as noted on the record. This Court has considered the pleadings, arguments of counsel, the testimony of witnesses, the exhibits, and the law, and finds and concludes as follows.2
At the outset, the Court notes and recognizes the impact any ruling on the pending Motion and Objections has on multiple stake holders in these chapter 11 cases. As noted on the record during the hearing, multiple parties including creditors, employees and the community may be impacted by the results of this decision. However, the impact on each employee and each retiree is huge, and may be difficult for many, if not all, to understand, much less accept as fair, equitable or just. The Court is keenly aware of this, and also aware of the employees' - especially the miners' - interest in the outcome of this motion.
In In re Patriot Coal, the following was noted:
[T]here is unquestionably no dispute that the lives and livelihood of Debtors' employees, both, union and non-union, current, and retired, depend on the outcome of Debtors' reorganization. 3
The Patriot Coal court also noted, without "men and women willing to bend their knees to excavate coal" there would be no need for the chapter 11 cases or the mines.4
This Court recognizes that the miners are the backbone and crucial workforce in these mining operations. Essentially, after all the documents have been reviewed, all the testimony has been presented, and arguments have been made by preeminent, highly-capable attorneys, the remaining dilemma facing this Court is straightforward. The Court must decide whether to rule in a manner that results in a shut down of the mines, or rule in a manner that allows the possibility that the mining operations continue, in the hopes that with a new owner, new management, the potential investment of capital, or other changes, the Mines continue operating, the miners keep valuable jobs, and the miners are able to benefit as the Mines become more profitable.
1. Mission Coal Company, LLC ("Mission Coal"), was formed on January 31, 2018, through a reorganization that combined and consolidated the operations of Seneca Coal Resources, LLC ("Seneca"), and its wholly-owned subsidiaries, and Seminole Coal Resources, LLC ("Seminole"), and its wholly-owned subsidiaries. See DX-51 ¶ 6.
2. Oak Grove Resources, LLC, and Pinnacle Mining Company, LLC, each subsidiaries of Seneca, own metallurgical coal mines (the "Oak Grove Mine" and "Pinnacle Mine," respectively, and collectively, the "Mines"), and are each parties to substantially similar collective bargaining agreements with the United Mine Workers of America (the "UMWA"), which represents miners employed at the Mines. See id. at ¶ 8; Hr'g Tr. 24:4-25:24, Feb. 20, 2019 (Nystrom); DX-4; DX-5.
3. Internal and external factors, such as rail and port disruptions and adverse mining and geological conditions, as well as the enormous capital infusions required to update and operate the Mines led to a liquidity crisis rendering the Debtors incapable of meeting their obligations. See Nystrom Decl. ¶¶ 7, 8; Hr'g Tr. 116:14-118:12, Feb. 20, 2019 (Zervos).
4. After failed attempts to restructure out of court, see Hr'g Tr. 166:6-16, Feb. 20, 2019 (Szlezinger); Nystrom Decl. ¶ 17, the Debtors filed for chapter 11 relief on October 14, 2018 (the "Petition Date"), commencing these chapter 11 Cases. To fund these chapter 11 Cases and their operations, the Debtors entered into the Senior Secured Superpriority Debtor-in-Possession Credit Agreement, dated as of October 16, 2018 (the "DIP Facility"), with their first lien creditors (the "DIP Lenders"). See DX-63 at Ex. 1 to Ex. A; DX-51 ¶¶ 20-21. At the time the Debtors filed for chapter 11 protection, the Debtors had only $54,000 of cash on hand, and the DIP Facility was the Debtors' only option if the Debtors were to continue operating the Mines; absent the DIP Facility, the Debtors would have ceased operations and liquidated, and all employees would have lost their jobs. See Hr'g Tr. 37:8-38:1. Feb. 20, 2019 (Nystrom); id. at 168:14-15 (Szlezinger).
5. The DIP Facility mandates that the Debtors conduct a process for the sale of substantially all of the Debtors' assets including, but not limited to, the Mines, in accordance with the schedule set forth on its Schedule 6.26 (as amended or modified from time to time, the "DIP Milestones"). See, e.g., DX-63 at Ex. 1 to Ex. A, Sch. 6.26; DX-166 at Ex. 1 to Ex. A, Sch. 6.26; Nystrom Decl. ¶ 23. To that end, the Debtors have been conducting a sales process, for which the deadline to submit bids (the "Bid Deadline") passed on February 13, 2019. DX-147 at ¶ 5.
6. No potential buyer, including the DIP Lenders who submitted an opening bid for the Debtors' assets in the form of a proposed asset purchase agreement (the "Proposed APA"), is willing to take the Debtors' assets subject to the legacy and labor costs imposed by the collective bargaining agreements described below. See Hr'g Tr. 198:5-15, Feb. 20, 2019 (Szlezinger); DX-84 at Ex. A; DX-147 ¶ 7.
7. Accordingly, pursuant to sections 1113 and 1114 of the Bankruptcy Code, and in accordance with the DIP Milestones, see DX-63 at Ex. 1 to Ex. A, Sch. 6.26, DX-166 at Ex. 1 to Ex. A, Sch. 6.26, the Debtors are seeking authorization, but not direction, to reject their collective bargaining agreements to eliminate the successorship provisions and to implement their final proposal pursuant to which, upon the closing of the proposed sale, the Debtors will terminate their retiree benefit obligations and any other obligations remaining under the collective bargaining agreements.
8. The Debtors are party to: (a) a collective bargaining agreement dated April 27, 2018, between Oak Grove Resources, LLC, and the UMWA (together with all amendments, predecessor and successor agreements, side letters, and memoranda of understanding, the "Oak Grove CBA,"), and (b) a collective bargaining agreement dated April 27, 2018 between Pinnacle Mining Company, LLC, and the UMWA (together with all amendments, predecessor and successor agreements, side letters, and memoranda of understanding, the "Pinnacle CBA," and together with the Oak Grove CBA, collectively, the "CBAs"). See DX-4; DX-5; Hr'g Tr. 24:4-25:24, Feb. 20, 2019 (Nystrom).
9. The CBAs covered approximately 650 of the Debtors' employees prior to the idling of the Pinnacle Mine and address virtually all aspects of the employer-employee relationship, including wage rates, work rules, paid time off, and health and welfare benefits afforded to UMWA employees. See DX-51 ¶¶ 8, 9.
10. In addition, the Debtors owe retiree benefits (as such term is defined by section 1114 of the Bankruptcy Code, the "Retiree Benefits") to certain former employees as well as their spouses and dependents. These Retiree Benefits include healthcare benefits administered by Anthem Insurance Companies, Inc. ("Anthem") and paid for by the Debtors. Id. at ¶ 11; Hr'g Tr. 33:20-22, Feb. 20, 2019 (Nystrom). The Debtors project that it will cost an average of $1.5 million per year over the next five years to fund the Anthem policy, and that the net present value of the Debtors' future obligations to fund the Anthem policy is approximately $45,413,778, as of December 31, 2018. See Hr'g Tr. 33:19-25, Feb. 20, 2019 (Nystrom); id. at 109:6-9 (Dungan); DX-120 at 3-4.
11. The Debtors are also responsible for pension liabilities and retiree benefit obligations arising from the Debtors' relationship with the UMWA,...
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