UMWA 1992 Benefit Plan v. Leckie Smokeless Coal Co.
| Decision Date | 16 April 1996 |
| Docket Number | Civil Action No. 5:96-0092. |
| Citation | 201 BR 163 |
| Court | U.S. District Court — Southern District of West Virginia |
| Parties | UMWA 1992 BENEFIT PLAN and its Trustees, and the UMWA Combined Benefit Fund and its Trustees, Plaintiffs, v. LECKIE SMOKELESS COAL COMPANY, New River Mineral Resources Company, and Gould Resources, Inc., Defendants. |
COPYRIGHT MATERIAL OMITTED
Ellen S. Cappellanti, Jackson & Kelly, Charleston, WV, Stephen L. Thompson, Barth, Thompson & George, Charleston, WV, for debtors.
Larry D. Newsome, Barbara E. Locklin-George, UMWA Health & Retirement Funds, Office of the General Counsel, Washington, DC, Susan Cannon-Ryan, Caldwell, Cannon-Ryan & Riffee, Charleston, WV, Marilyn L. Baker, Beins, Axelrod, Osborne, Mooney & Green, Washington, DC, Katherine Butler Houlihan, Morgan, Lewis & Bockius, LLP, Washington, DC, for movants United Mine Workers of America 1992 Benefit Plan, United Mine Workers of America Combined Benefit Fund.
John Hankins, Huntington, WV, for interested party Unsecured Creditors Committee.
William M. Herlihy, Spilman, Thomas, Battle & Klostermeyer, Charleston, WV, Ethan D. Fogel, Dechert Price & Rhoads, Philadelphia, PA, for interested party Royal Scot Minerals, Inc.
This matter is before the Court via Objection of the UMWA Combined Fund and 1992 Benefit Plan to Debtors' Motion to Approve Bidding and Auction Procedures and to Approve Option and Asset Purchase Agreement and Assumption and Assignment of Executory Contracts and Leases ("Plaintiffs' Objection").
Defendants' Joint Motion for Entry of an Order Approving Bidding and Auction Procedures and an Order Approving Auction and Asset Purchase Agreement and Assumption and Assignment of Executory Contracts and Leases ("Motion to Sell") is currently pending before the United States Bankruptcy Court for the Southern District of West Virginia. By Order entered March 13, 1996 this Court withdrew reference of Plaintiffs' Objections pursuant to 28 U.S.C. § 157(d) and by Order of March 26, 1996 directed the parties to brief the issue of the effect of a free and clear order under 11 U.S.C. § 363(f) on successor liability under the Coal Industry Retiree Health Benefit Act of 1992 ("the Coal Act"), 26 U.S.C. § 9701, et seq.
In response to the Court's May 26, 1996 Order and briefing schedule, Plaintiffs submitted Plaintiff Coal Act Funds' Brief Supporting Objection to Leckie's Sale Motion ("Plaintiffs' Brief"), and Defendants submitted a Memorandum of Debtors Leckie Smokeless Coal Company, New River Mineral Resources Company and Gould Resources, Inc. in Response to the Objection of UMWA 1992 Benefit Plan and UMWA Combined Benefit Fund to Debtors' Motion to Approve Bidding and Auction Procedures, and to Approve Option and Asset Purchase Agreement and Assumption and Assignment of Executory Contracts and Leases ("Defendants' Brief"). Plaintiffs also submitted Plaintiff Coal Act Funds' Response Brief, Supporting Objection to Sale ("Plaintiffs' Response"), and Defendants simultaneously submitted a Reply Memorandum of Debtors Leckie Smokeless Coal Company, New River Mineral Resources Company and Gould Resources, Inc. in Reply to Plaintiff's sic Coal Act Funds' Brief Supporting Objection to Leckie Smokeless Coal Company's Sale Motion ("Defendants' Response") which Royal Scot Minerals, Inc., the prospective buyer in the sale pending before the Bankruptcy Court, joined. Having carefully considered said briefs and responses and the exhibits attached thereto the Court is now prepared to rule upon Plaintiffs' Objection.
I. Facts
Defendant Leckie Smokeless Coal ("Leckie"), in business since 1919, operated two deep mines and one surface mine in Rupert, West Virginia. Defendants New River Mineral Resources ("New River") and Gould Resources, Inc. ("Gould") are affiliates of Leckie's. Their primary assets are leases of coal lands adjacent to Leckie's property. Neither Gould nor New River has engaged employees to mine coal, although Gould has periodically hired contract miners. (Motion to Sell, ¶ 7.)
Plaintiffs are the Trustees of the UMWA 1992 Benefit Plan ("the 1992 Plan") and the Trustees of the UMWA Combined Benefit Fund ("the Combined Fund") (collectively "the Funds"). The Funds were created pursuant to the Coal Act which was signed into law on October 24, 1992 as subtitle C to the Energy Policy Act of 1992, in the form of amendments to the Internal Revenue Code and the Surface Mining Act, Pub.L. No. 102-486. The Coal Act was enacted in response to a crisis in the coal industry over retirees' health benefits. Prior to the Coal Act, collectively bargained multiemployer benefit plans provided health care benefits to most retired miners. However, as coal companies went out of business and more coal industry employees retired, these employees were dumped into the existing multiemployer benefit plans whose contributors were diminishing, creating an escalating burden on the plans which lacked adequate mechanisms to ensure continuing employer contributions.
The Coal Act became effective February 1, 1993. It created the Combined Fund to cover beneficiaries eligible for and receiving retiree health benefits under the UMWA's former 1974 and 1950 Benefit Plans. 26 U.S.C. §§ 9702(a), 9703(f). Those retirees who are not eligible for the Combined Fund receive benefits directly from their last employer who was a signatory to the National Bituminous Coal Wage Agreement ("NBCWA") or "last signatory employer." 26 U.S.C. § 9711(a)-(b). The 1992 Plan covers those retirees not eligible for the Combined Fund and who are not receiving benefits directly from their last signatory employer. 26 U.S.C. § 9712(b).
To finance the Combined Fund, the Coal Act imposes on "assigned operators" and their related persons under 26 U.S.C. § 9704(a) statutory obligations to contribute monthly per beneficiary premiums. Pursuant to 26 U.S.C. § 9706, the Secretary of Health and Human Services sets the number of beneficiaries assigned to each operator and their related persons. The monthly per beneficiary premium is set according to a formula prescribed pursuant to 26 U.S.C. § 9704(b)(2). It is currently $183.38 per beneficiary per month. (Exhibit 1 to Plaintiffs' Brief ("Exhibit 1"), p. 2.)
The 1992 Plan is also funded by per beneficiary premiums, based on a rate set by the 1992 Plan's Trustees. 26 U.S.C. §§ 9712(d)(1)(B), (d)(2)(A). The Trustees for the 1992 Plan determine each beneficiary's last signatory employer defined as the "operator which was the most recent coal industry employer of such retiree." 26 U.S.C. § 9712(d)(1)(B). The Trustees then adjust the beneficiary count and premiums for each assigned operator and their related persons on a monthly basis dependant on the number of eligible beneficiaries attributable to each employer. The basic premium rate is recalculated annually based on the costs of health care. The current per beneficiary premium for the 1992 Plan is $235. (Exhibit 1, p. 2.)
There are 140 beneficiaries assigned to Defendants under the Combined Fund and 87 beneficiaries attributable to Defendants as their last signatory employer under the 1992 Plan. (Exhibit 1, pp. 1-2.) Thus, there are 227 beneficiaries for whom Defendants are responsible for paying per beneficiary premiums to the Funds under the Coal Act. In the instant bankruptcy case, Plaintiffs have filed Proofs of Claim for a total of $1,414,211.24 for delinquent contributions and premiums for pension and benefits due under the Coal Act, the NBCWA and ERISA. (Exhibit F to Defendants' Brief ("Exhibit F").) Defendants assert that their "total Coal Act liability will easily exceed $7,000,000." (Defendants' Brief, p. 8.)
1. Bankruptcy
All three defendants have filed voluntary petitions for bankruptcy under Chapter 11 of the Bankruptcy Code. On April 16, 1993 Leckie filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. New River filed under Chapter 11 on November 13, 1995 and Gould followed shortly thereafter, filing its voluntary petition for bankruptcy under Chapter 11 on November 17, 1995. When Leckie filed for bankruptcy, its assets consisted of mining equipment, mining permits, an operational preparation plant, leasehold interests and 2,000 acres of land. (Defendants' Brief, p. 3.) At that time Leckie had over 150 employees. Leckie kept up its payments to the Funds until January of 1994 when it ceased active mining operations and terminated most of its employees. Shortly after Leckie ceased mining there was a fire at its preparation plant, rendering the plant inoperable. (Defendants' Brief, pp. 34.)
For the past two years Joseph C. Turley, III, President of the three defendants, has been attempting to sell Defendants' assets pursuant to 11 U.S.C. §§ 363 and 365. Royal Scot Minerals, Inc. (the Buyer), an entity unrelated to Defendants (Motion to Sell, ¶ 20), has offered to purchase Defendants' assets for approximately $1.9 million ($1.5 million for Leckie's property, $272,500 for New River's property and $156,750 for Gould's property). (Motion to Sell, ¶ 11.) Defendants seek to have the Bankruptcy Court approve an Option and Purchase Agreement among the Buyer and Defendants. (Exhibit A to Motion to Sell.) The Bankruptcy Court entered an Interim Order Approving Bidding and Auction Procedures and Scheduling Order Setting Forth Notice Requirements for Hearing on Debtors' Joint Motion Seeking Approval of Option and Asset Purchase Agreement. Plaintiffs filed the instant Objection to Defendants' Motion to Sell. Because Plaintiffs' Objection required consideration of non-bankruptcy law, namely the Coal Act, withdrawal of reference of Plaintiffs' Objection was mandatory pursuant to 28 U.S.C. § 157(d). Following this Court's ruling on Plaintiffs' Objection, the Bankruptcy Court will conduct a confirmation hearing on Defendants' Motion to Sell.
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