Published May 29, 2013
ST. LOUIS – A bankrupt coal producer got a judge's go-ahead Wednesday to significantly cut health care and pension benefits to thousands of workers and retirees, claiming victory over a miners' union that swiftly condemned the ruling it pledges to appeal.
U.S. Bankruptcy Judge Kathy Surratt-States' 102-page ruling favoring St. Louis-based Patriot Coal dashed the nation's biggest coal miners' union's hopes of scuttling the company's quest to impose wage and benefit cuts by walking away from its collective-bargaining agreements.
Surratt-States ultimately concluded the cost-cutting proposals were legal, perhaps unavoidable, for Patriot, which sought Chapter 11 bankruptcy protection last summer to address labor obligations it insisted have grown unsustainable.
"Unions generally try to bargain for the best deal for their members," the judge wrote. "However, there is likely some responsibility to be absorbed for demanding benefits that the employer cannot realistically fund in perpetuity, particularly given the availability of sophisticated actuarial analysts and cost trend experts."
The union, through its attorney during a recent weeklong St. Louis hearing over Patriot's cost-cutting, had threatened a strike if Surratt-States' decision didn't go organized labor's way. The union steered clear Wednesday of walkout talk, saying it would continue arguing during protests that Patriot was set up to fail when spun off. The union said that negotiations would continue and that it would appeal Surratt-States' ruling.
"We have long acknowledged that Patriot is in trouble," Cecil Roberts, the union's president, said in a statement. "We remain willing to take painful steps to help Patriot get through the rough period it faces over the next couple of years. But if we're going to share in that pain, then we have every right to share in the company's gain when it becomes profitable again."
"As often happens under American bankruptcy law," Roberts added, "the short-term interests of the company are valued more than the dedication and sacrifice of the workers, who actually produce the profits that make a company successful."
Patriot's proposed cuts have been the most contentious aspect since the Peabody Energy Corp. spinoff filed for bankruptcy. The company said it would have to spend $1.6 billion to cover the health care costs, putting it at risk of liquidation.
Bennett Hatfield, Patriot's president and CEO, called the ruling "a major step forward" for the company. But he said bargaining with the union would press on, insisting "we continue to believe that a consensual resolution is the best possible outcome for all parties."
While looking to cease pension contributions, Patriot has proposed creating a trust with up to $300 million from future profit-sharing to fund some level of health benefits. Patriot also would give the union a 35 percent equity stake in the company once it emerges from bankruptcy.
Prospects of a walkout would mirror the labor dispute involving the bankruptcy of Hostess Brands Inc. The Irving, Texas-based maker of Wonder Bread, Twinkies and other baked goods last year filed for Chapter 11 protection and later announced it was going out of business and liquidating after a nationwide strike by its bakers union crippled operations.
In Patriot's case, Hatfield has called the moves necessary for the coal company's survival and the preservation of more than 4,000 jobs, the bulk of them in Kentucky and West Virginia.
During first three months of this year, the company reported a net loss of $115.9 million, compared with a loss of $75.3 million over the same time last year.
Union leaders contend Patriot was saddled with unsustainable pension and long-term health care obligations when Peabody jettisoned it as a separate company in 2007, essentially setting it up to fail.
Peabody disputes that. It has said Patriot "was highly successful following its launch more than five years ago" but caught up in the industry undertow that affected all coal producers, including a global financial crisis, development of low-cost shale gas that cut demand for coal and burdensome federal regulation.
Wednesday's ruling did nothing to resolve that debate.
"Was Debtor Patriot Coal Corp. created to fail? Maybe not. Maybe," the judge wrote. "Maybe the executive team involved at (Patriot's) inception thought the liabilities were manageable and thus the reality of Debtors' bankruptcy was more attributed to unwarranted optimism about future prospects."
"The legacy of unfunded retiree medical benefits," she added, "was itself the result of Congressional inaction, a changing manufacturing landscape, and the benign neglect and false hopes of companies and unions alike."