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Patriot Coal Corporation v. Peabody Holding Company LLC (In re Patriot Coal Corporation)

Patriot Coal Corp. v. Peabody Holding Co. (In re Patriot Coal Corp.), Case No. 13-6031 (B.A.P. 8th Cir, August 21, 2013)
In REVERSING the decision of the bankruptcy court, the Eighth Circuit Bankruptcy Appellate Panel held that Peabody Holding must continue to pay health-care benefits for certain retired miners and dependents who worked for Heritage Coal Co., a Peabody subsidiary that was transferred to Patriot Coal in 2007. Specifically, the BAP ruled that at the time Patriot Coal and Heritage Coal were spun off from Peabody Holding, Peabody Holding agreed to assume liability to provide healthcare to certain retirees. This agreement was not affected by Heritage Coal’s rejection of its collective bargaining agreement, but instead arose from the statutory obligations imposed upon Heritage under 11 U.S.C. 1114, which requires a debtor to timely pay retiree benefits unless the bankruptcy court determines that modification of those benefits is necessary, which it did not.
Procedural context:
Appellants, Patriot Coal and its subsidiary Heritage, appealed from the bankruptcy court’s summary judgment denying their request for declaratory relief and granting summary judgment to the appellees, Peabody Holding and Peabody Energy Corporation. The Appellants originally sought declaratory relief under 28 .S.C. 2201 and Fed. R. Civ. P. 57 and requested a declaration that Peabody Holding’s obligations with respect to the health care benefits owed to certain assumed retirees will not be affected by modification of the benefits of retirees of Heritage or Eastern Associated (current subsidiaries of Patriot Coal) under Section 1114.” The bankruptcy court held that Peabody Holding’s obligations would be affected by a modification of benefits, denied declaratory relief and ruled in Peabody Holding’s favor. The BAP reversed.
Heritage, Patriot Coal and Peabody Holding were at one time all subsidiaries of Peabody Energy. While a subsidiary of Peabody Energy, Heritage entered into what is known as a “me too” collective bargaining agreement with the United Mine Workers of America (“UMWA”). As part of this “me too” agreement, Heritage agreed to be bound by provisions of the 2011 National Bituminous Coal Wage Agreement (NBCWA) which affords retirees certain health and other benefits. In August 2007, prior to the spin off of certain of the Patriot Coal subsidiaries, including Heritage, Peabody Energy entered into an agreement with the UMWA that provided that Peabody Holding would be “primarily obligated” to pay for the benefits of approximately 3100 of Heritage’s retirees (the “Assumed Retirees”) under the terms of an individual employer plan maintained by Heritage (“Assent Agreement”). In connection with this Assent Agreement, Peabody Holding and Heritage subsequently entered into a liabilities assumption agreement (“Liabilities Assumption Agreement”), pursuant to which Peabody Holding agreed and assumed to pay, “amounts [Heritage] pays for benefits to those [Assumed Retirees] . . . under the terms of the NBCWA Individual Employer Plan.” Subsequently, in 2007 Heritage and Patriot Coal were spun off from Peabody Energy and in July 2012 Patriot Coal and a number of its subsidiaries, including Heritage, filed petitions under Chapter 11. In its bankruptcy, Heritage successfully rejected the “me to” collective bargaining agreement. The court considered 3 issues: Did the Assumed Retiree’s benefits emanating from the “me too” collective bargaining agreement survive rejection of the collective bargaining agreement? Second, if so, were the benefits modified? And third, is Peabody Holding relieved from its liability under the Liabilities Assumption Agreement? The BAP determined that the Assumed Retirees’ benefits did in fact survive rejection of the “me too” collective bargaining agreement. It noted that a collective bargaining agreement can be rejected, which would remove any contractual obligation for the debtor to pay benefits to retirees, but pursuant to statutory authority the debtor would still be required to timely pay for and refrain from modifying retiree benefits unless authorization to modify is granted under 1114. The court then determined that the benefits were not modified under 1114 because neither Heritage nor the UMWA requested a modification. So, absent modification, Heritage was statutorily obligated to pay for retiree benefits. Finally, the court determined that Peabody Holding’s obligation under the Assent Agreement extended to not only contractual obligations of Heritage (that were of course relieved through rejection of the collective bargaining agreement), but also statutory obligations of Heritage under 1114 of the Bankruptcy Code. Thus, Peabody Holding was liable for the Assumed Retirees' benefits. The court explained that “[w]hether Heritage’s obligation is contractual or statutory in nature is of no consequence – Heritage is still obligated by 1114 to provide benefits under the terms of the individual employer plan. This is precisely what Peabody Holding agree to assume and pay. Peabody Holding’s obligation under the liabilities assumption agreement remains undisturbed.”
FEDERMAN, Chief Judge, KRESSEL and SHODEEN, Bankruptcy Judges.

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