United Mine Workers of Am. 1974 Pension Plan & Trust v. Walter Energy, Inc.

• Decision Date: 18 May 2016
• Docket Number: Case No.: 2:16-cv-00057-RDP
• Parties: UNITED MINE WORKERS OF AMERICA 1974 PENSION PLAN AND TRUST, et al., Appellants, v. WALTER ENERGY, INC., et al., Appellees.
• Court: U.S. District Court — Northern District of Alabama

579 B.R. 603

UNITED MINE WORKERS OF AMERICA 1974 PENSION PLAN AND TRUST, et al., Appellants,

v.WALTER ENERGY, INC., et al., Appellees.

Case No.: 2:16-cv-00057-RDP

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

Signed May 18, 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 December 28, 2015 Memorandum Opinion and Order Granting Debtors' Motion for an Order Authorizing the Debtors to (A) Reject Collective Bargaining Agreements, (B) Implement Final Labor Proposals, and (C) Terminate Retiree Benefits; and Granting Related Relief (the "1113/1114 Order") (Doc. # 1-3).¹ Appellants² raise arguments regarding the reach of 11 U.S.C. §§ 1113 and 1114, and whether the Bankruptcy Court properly applied those statutes when ordering the termination and modification of Debtors-Appellees' collective bargaining agreement ("CBA") with non-party United Mine Workers of America ("UMWA"), and obligations to Appellants under the Coal Industry Retiree Health Benefit Act, 26 U.S.C. §§ 9701 -9724 (the "Coal Act"). Specifically, this court must determine the following four issues:

1. Whether the phrase "necessary to permit the reorganization of the debtor," contained in Sections 1113 and 1114, allows a debtor to avoid benefit obligations in a Chapter 11 plan of liquidation.

2. Whether Coal Act obligations may be modified or terminated under Section 1114.

3. Whether the Tax Anti-Injunction Act ("AIA"), 26 U.S.C. § 7421, acts as a jurisdictional bar to the Bankruptcy Court’s modification of Coal Act obligations pursuant to Section 1114.

4. Whether Debtors obeyed the proper procedure and substantive requirements of Section 1113, thereby allowing the Bankruptcy Court to order a rejection of their CBA with the UMWA.

This appeal is fully briefed, and the relevant record has been transmitted. (Docs. # 17, 28, 29, 34; see also Docs. # 35, 37). The court heard oral argument on February 1, 2016 concerning the request for a stay pending appeal in this and related appeals. Because the parties addressed many of the issues presented here at that argument, and the parties' briefs suffice in other regards, the court does not find it necessary to hold a hearing related to this appeal. After careful review, and for the following reasons, this court concludes that the Bankruptcy Court is due to be affirmed.

II. Background and Proceedings Below

The 1113/1114 Order terminated both the Debtors' CBA with the UMWA and obligations to make payments under the Coal Act and pursuant to four employee and retiree benefit plans established by CBAs. These terminations set an end date to Debtor’s obligations under those liabilities, and would prevent the proposed purchaser (and interested party in this appeal), Warrior Met Coal, LLC, f/k/a Coal Acquisition LLC ("Warrior Met"), from assuming them.

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 that 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" (defined as 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. Sections 1113 and 1114 of the Bankruptcy Code

Congress enacted Section 1113 in response to the Supreme Court’s decision in NLRB v. Bildisco & Bildisco , 465 U.S. 513, 104 S.Ct. 1188, 79 L.Ed.2d 482 (1984). Wheeling–Pittsburg Steel Corp. v. United Steelworkers of Am. , 791 F.2d 1074, 1089 (3d Cir.1986). In Bildisco , the Supreme Court "held that a debtor may unilaterally reject a collective bargaining agreement under section 365(a) of the Bankruptcy Code by showing that the agreement ‘burdens the estate, and that after careful scrutiny, the equities balance in favor of rejecting the labor contract.’ " In re AMR Corp. , 477 B.R. 384, 405 (Bankr.S.D.N.Y.2012) (quoting Bildisco , 465 U.S. at 526, 104 S.Ct. 1188 ). Congress then enacted Section 1113"to replace the Bildisco standard with one that was more sensitive to the national policy favoring collective bargaining agreements...." Wheeling–Pittsburgh , 791 F.2d at 1089. It is intended "to ensure that well-informed and good faith agreements occur in the market place, not as part of the judicial process." N.Y. Typographical Union No. 6 v. Maxwell Newspapers, Inc. (In re Maxwell Newspapers, Inc. ), 981 F.2d 85, 90 (2d Cir.1992). Section 1113"requires that a debtor take a number of procedural steps prior to rejecting a [CBA]." AMR Corp. , 477 B.R. at 406.

Section 1114 was adopted as part of the Retiree Benefits Bankruptcy Protection Act of 1988, Pub. L. No. 100–334, 102 Stat. 610, 613 (1988), and applies to all Chapter 11 cases commenced after June 16, 1988. In re N.Y. Trap Rock Corp. , 126 B.R. 19, 21 (Bankr.S.D.N.Y.1991). Congress enacted it in response to the termination of the health and life insurance benefits of approximately 79,000 retirees in the LTV Corporation Chapter 11 bankruptcy. Id. ; see LTV Steel Co., Inc. v. United Mine Workers of Am. (In re Chateaugay Corp. ), 922 F.2d 86, 88–89 (2d Cir.1990). Pursuant to Section 1114, a Chapter 11 trustee or "a debtor in possession is required to continue to pay retiree benefits throughout reorganization under a ‘plan, fund, or program’ and at the levels maintained prior to the filing of the bankruptcy case, until or unless a modification is agreed to by the parties or ordered by the court." N.Y. Trap Rock , 126 B.R. at 21–22. The term "retiree benefits" is defined in Section 1114. 11 U.S.C. § 1114(a). A court is required to appoint an "authorized representative" in accordance with Section 1114(c)(2) if a trustee or debtor in possession seeks to modify or terminate retiree benefits. N.Y. Trap Rock , 126 B.R. at 22. If no agreement results from negotiations between the trustee or debtor in possession and the retirees' authorized representative, the trustee or debtor in possession may move for a court-approved modification under Section 1114(g). Id.

The statutory "requirements for modification of...