United Mine Workers of Am. Combined Benefit Fund v. Walter Energy, Inc.

• Citation: 551 B.R. 631
• Decision Date: 08 March 2016
• Docket Number: Case No.: 2:16-cv-00064-RDP
• Parties: United Mine Workers of America Combined Benefit Fund, et al., Appellants, v. Walter Energy, Inc., et al., Appellees.
• Court: U.S. District Court — Northern District of Alabama

551 B.R. 631

United Mine Workers of America Combined Benefit Fund, et al., Appellants

v.Walter Energy, Inc., et al., Appellees.

Case No.: 2:16-cv-00064-RDP

United States District Court, N.D. Alabama, Southern Division.

Signed March 8, 2016

Amelia C. Joiner, Julia Frost-Davies, Morgan Lewis & Bockius LLP, Boston, MA, George N. Davies, Glen M. Connor, Quinn Connor Weaver Davies & Rouco, Birmingham, AL, John C. Goodchild, III, Rachel Jaffe Mauceri, Morgan Lweis & Bockius LLP, Philadelphia, PA, John R. Mooney, Paul A. Green, Mooney Green Saindon Murphy & Welch, Bryan M. Killian, Raechel K. Anglin, Stephanie Schuster, Morgan Lewis & Bockius LLP, Washington, DC, for Appellants.

Ann K. Young, Claudia R. Tobler, Kelley A. Cornish, Michael S. Rudnick, Stephen J. Shimshak, Robert N. Kravitz, Paul Weiss Rifkind Wharton & Garrison, Diane Meyers, New York, NY, Cathleen Curran Moore, James B. Bailey, Jay R. Bender, John Patrick Darby, Bradley Arant Boult Cummings LLP, Birmingham, AL, Jayna Partain Lamar, Robert K. Ozols, Maynard Cooper & Gale PC, Birmingham, AL, Scott B. Smith, Bradley Arant Boult Cummings LLP, Huntsville, AL, for Appellees.

MEMORANDUM OPINION

R. DAVID PROCTOR, UNITED STATES DISTRICT JUDGE

I. Introduction

This case is before the court on an appeal from the United States Bankruptcy Court for the Northern District of Alabama's January 8, 2016 Order (I) Approving the Sale of the Acquired Assets Free and Clear of Claims, Liens, Interests and Encumbrances; (II) Approving the Assumption and Assignment of Certain Executory Contracts and Unexpired Leases; and (III) Granting Related Relief (the “Sale Order”) (Doc. # 1-3, or Doc. # 15-3 at A235-265). Appellants raise arguments in this appeal regarding the jurisdiction of the Bankruptcy Court and the reach of 11 U.S.C. § 363(f). Specifically, this court must determine the following two questions:

1. Whether the Bankruptcy Court had jurisdiction to order a free and clear sale pursuant to 11 U.S.C. § 363(f) precluding the purchaser of the Debtors' assets from future liability for payments made under the Coal Industry Retiree Health Benefit Act, 26 U.S.C. §§ 9701 –9722 (the “Coal Act”).

2. Whether future Coal Act liabilities for periods after the closing of the asset sale pursuant the Sale Order constitute “interests in... property” that may be extinguished under 11 U.S.C. § 363(f).

This appeal is fully briefed (Docs. # 15, 39, 40, 44), and the relevant record has been transmitted (Docs. # 15, 39, 44). Because the court held extensive oral argument concerning the “merits” of this appeal during the February 1, 2016 hearing in connection with Appellants' Emergency Motion for a Stay Pending Appeal, the court has determined oral argument is not necessary to decide this case. (Doc. # 29). For the following reasons, this court concludes that the Bankruptcy Court had jurisdiction to order a sale free and clear of Coal Act payments pursuant to 11 U.S.C. § 363(f). Accordingly, the Bankruptcy Court is due to be affirmed.

II. Background and Proceedings Below

The Sale Order applies to certain of Debtors' assets and would prevent the proposed purchaser, Coal Acquisition LLC, from assuming Coal Act liabilities for those assets.

A. The Coal Act

The Coal Act applies to Debtors. This court has previously addressed the origin and purpose of the Coal Act:

The Coal Act requires present and former coal operators, such as the plaintiffs in this case, to pay for the health benefits of coal industry retirees and their dependents. 26 U.S.C. §§ 9702, 9704. Congress passed the Coal Act in 1992 to ensure that retired coal miners and their dependents and widows continue to receive the lifetime health benefits guaranteed by earlier collective bargaining agreements with coal operators. Before the Coal Act was passed, the two multi-employer health care plans that provided benefits to retired miners (the “Plans”) were operating at a deficit. The financial instability of the Plans led to a breakdown in labor relations, the cessation of operator contributions to the Plans, and an eleven-month strike by mine workers. National Coal Association v. Chater , 81 F.3d 1077, 1078–79 (11th Cir.1996). In an effort to remedy the funding problems yet maintain a privately financed program, Congress consolidated the Plans into the Combined Fund with financing primarily provided by coal operators.

AJ Taft Coal Co., Inc. v. Barnhart , 291 F.Supp.2d 1290, 1295 (N.D.Ala.2003). In addition to the Combined Fund, the Coal Act established the 1992 Plan (together the “Coal Act Funds”). 26 U.S.C. § 9712. The 1992 Plan provides benefits to two groups of retired coal miners: (1) those otherwise eligible for Combined Fund benefits, but who retired after the cut-off date, and (2) those whose former employers have failed to provide benefits under individual employer plans (“IEPs”). Id. Any employer who provided healthcare benefits to retirees through an IEP as of February 1, 1993, must continue to do so for as long as the employer remains in business. Id. at § 9711(a).

The Coal Act Funds are funded primarily through statutorily required “premiums.” 26 U.S.C. §§ 9704, 9711, 9712. Combined Fund premiums are assessed against “assigned operators,” and those assigned operators' related persons and successors in interest are jointly and severally liable. See id. at §§ 9701(c), 9704(a), 9706. The amount of the Combined Fund assessment fluctuates annually, depending on the number of retirees and the premium rate set by the Commissioner of Social Security. Id. at § 9704(a) –(b), (g). Under the 1992 Plan, Premiums are assessed monthly against “last signatory operators” (the most recent coal industry employers of the retirees, including “related persons” and their successors in interest) based on the number of 1992 Plan beneficiaries assigned to that last signatory operator. Id. at §§ 9701(c), 9711(g), 9712(d)(2)–(4). If these funding schemes prove insufficient, Congress has created means for addressing shortfalls in Coal Act Funds premiums to be paid. See U.S. Steel Corp. v. Astrue , 495 F.3d 1272, 1276–77 (11th Cir.2007) (explaining statutory backstop for retirees under Combined Fund); 26 U.S.C. § 9712 (allowing for transfer of moneys from other statutorily created Funds). Congress designed the Coal Act to protect against the “chance of the miners being denied their benefits” if an employer or signatory to a covered Plan goes bankrupt. Holland v. Williams Mountain Coal Co. , 256 F.3d 819, 821 (D.C.Cir.2001).

B. The Walter Energy Bankruptcy and the Sale Order

Debtors—that is, Walter Energy and twenty-two affiliated companies (collectively, “Walter Energy”)—produce and export metallurgical coal for the global steel industry, with mineral reserves in the United States, Canada, and the United Kingdom. In re Walter Energy, Inc. , 542 B.R. 859, 866 (Bankr.N.D.Ala.2015) (the “1113/1114 Order ”).¹ Walter Energy also extracts, processes, and markets thermal and anthracite coal and produces metallurgical coke and coal bed methane gas.” Id. The No. 4 and No. 7 mines at Jim Walter Resources, Inc. (one of Walter Energy's affiliated companies) are “the heart of the Debtors' operations.” Id.

On July 15, 2015, due to market forces, Walter Energy was compelled to file petitions for relief under Chapter 11 of the Bankruptcy Code. In re Walter Energy , 542 B.R. at 866. After unsuccessfully attempting Chapter 11 restructuring, Walter Energy marketed its assets in anticipation of a sale pursuant to Section 363 of the Bankruptcy Code. Id. at 870–72. There was only one potential buyer. “After two months of negotiations,... Debtors executed an asset purchase agreement ... with Coal Acquisition, LLC, an entity owned by the First Lien Creditors.”² Id. at 870. (See also Doc. # 39-4 at A1395-1521). Coal Acquisition agreed to purchase Walter Energy's core Alabama mining operations for consideration including a $1.15 billion credit bid by the lenders and an additional $185.5 million in cash, trust funding, and assumed liabilities. In re Walter Energy , 542 B.R. at 869–70. But, Coal Acquisition would only purchase certain of Debtors' assets if they were free and clear of legacy and current labor costs, and all claims, liens, interests and encumbrances, including the assumption of Coal Act payment responsibilities. Id. at 870 ; (Docs. # 15-4 at A428-555); (Doc. # 1-3).

After motions and briefing, the Bankruptcy Court issued the 1113/1114 Order on December 28, 2015, and the Sale Order on January 8, 2016.³ (Docs. # 15-3 at A266-322, 1-3). The Sale Order provides in pertinent part:

6. Upon the Closing: (a) the Debtors are hereby authorized and directed to consummate, and shall be deemed for all purposes to have consummated, the sale, transfer and assignment of all of the Debtors' rights, title and interest in the Acquired Assets to the Stalking Horse Purchaser free and clear of all Encumbrances and Liabilities, other than the Assumed Liabilities and the encumbrances identified on Schedule I hereto...; and (b) except as otherwise expressly provided in the Stalking Horse Agreement, all Encumbrances and Liabilities (other than the Assumed Liabilities and the Permitted Encumbrances) shall not be enforceable as against the Stalking Horse Purchaser or the Acquired Assets. Unless otherwise expressly included in the Assumed Liabilities and Permitted Encumbrances or as otherwise expressly provided by this Order, the Stalking Horse Purchaser shall not be responsible for any claims, liens, interests and encumbrances, including in respect of the following: (i) any labor or employment agreements;... (v) any other employee, worker's compensation, occupational disease or unemployment or temporary disability related claim, including, without limitation, claims that might otherwise arise under or pursuant to... (k) the Coal Industry Retiree Health Benefit Act of 1992, 26 U.S.C. §§ 9701, et seq. or (l) any other state or federal benefits or claims relating to any employment with the Debtors or any of their

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