* Company seeks court approval of cuts to pensions,
* Union stages rally; conflicting reports on attendance
* Patriot seeks to hold former parent liable for benefits
By Tim Bross and Nick Brown
ST. LOUIS/NEW YORK, April 29 Patriot Coal Corp
on Monday told a judge it would liquidate if not
allowed to make drastic cuts to employee pension and healthcare
benefits, as coal miners protested on the first day of a
week-long court hearing.
Patriot, which filed for bankruptcy in July, told the U.S.
Bankruptcy Court in St. Louis it planned to cut $150 million in
annual labor costs by ceasing pension contributions and
converting healthcare to an outside fund.
The United Mine Workers of America (UMWA) has condemned the
proposals as "nowhere near" fair, but a Patriot lawyer said it
is a matter of survival.
"If denied, we are headed for a catastrophic end," Patriot
attorney Elliot Moskowitz said. "We will liquidate."
In rallies staged by the UMWA outside the courthouse, 16
protesters were arrested. The union boasted that the rallies
drew 6,000 attendees, though the St. Louis Metropolitan Police
Department reported 2,000.
'THE BLOOD OF THE MINER'
Under bankruptcy law, if companies cannot negotiate
compromises with unions, they can seek court permission to
impose cuts unilaterally. But the companies must show that the
cuts are crucial to survival, and that a good-faith effort has
been made to achieve them cooperatively.
Patriot has offered to cease pension contributions and
convert healthcare to a voluntary employees' beneficiary
association, or VEBA, funded by $15 million in up-front cash and
$300 million in profit-sharing contributions. The union would
receive a 35 percent equity stake in post-bankruptcy Patriot,
which it could sell to help fund the VEBA.
Benefits for about 13,000 retired workers and their
dependents are at stake.
During cross-examination on Monday, a union lawyer asked
Gary Robertson, part of Patriot's in-house legal team, to
estimate a dollar value for the proposed 35 percent stake, but
Robertson said the question would more appropriate for Patriot's
Employees' claims in bankruptcy are subordinate to secured
debt like loans and bonds, meaning worker benefits are often the
first place bankrupt companies look for cost savings.
This is especially pertinent in the coal industry, where
benefits for generations of retirees are shouldered by an
Fred Perillo, a lawyer for the union, cited the risk of an
underfunded VEBA that could leave employees "staring into the
"The cost of coal must bear the blood of the miner," Perillo
said, an allusion to former British Prime Minister David Lloyd
Perillo said generations of union workers have made
concessions on wages and other items in exchange for the promise
of lifetime healthcare and pension benefits.
Moskowitz, Patriot's counsel, said the union wanted to take
control of the company, having proposed a counteroffer to own a
57 percent stake in Patriot.
Both the union and Patriot have tried to shift some of the
burden to former parent Peabody Energy Co, which created
Patriot in a 2007 spinoff.
In a separate lawsuit that was heard but not decided on
Monday, Patriot is seeking a declaration that liability for the
benefits rests with Peabody, not Patriot.
In a similar lawsuit in a federal court in West Virginia,
the union has advanced the same argument, accusing Peabody of
burdening Patriot with its heaviest legacy liabilities,
effectively ridding itself of labor costs while setting Patriot
up to fail. The union says Peabody should fund retiree benefits
if Patriot is unable to do so.
The union's argument is rooted in a decades-old practice by
the UMWA of compromising on wages and other factors to protect
pension and retiree healthcare. Under language in various
industry contracts, union workers contend they are guaranteed
Peabody has tried to stay out of the fray, insisting that it
has no legal obligation to foot the bill for the union's
In a statement, Peabody spokesman Vic Svec said Patriot was
"highly successful" following the spinoff and had "significant
assets" that helped its market value "quadruple in less than a
"Peabody has lived up to its obligations and continues to do
so," Svec said.
Inside the courtroom, about half of the 60 seats were
occupied by miners and their families, many wearing t-shirts
saying "Peabody promised, Patriot lied."
Patriot will continue to call witnesses on Tuesday and
Wednesday. The union is expected to argue its case and call its
own set of witnesses.
In one minor victory for Patriot, Judge Kathy Surratt-States
ruled on Monday that the union's pension and healthcare funds
could not intervene in the case, giving credence to Patriot's
argument that the funds, which are aligned with the union, would
effectively give the union two chances when cross-examining
Patriot Chief Executive Bennett Hatfield is slated to take
the stand on Wednesday, and the hearing is expected to run
Patriot also has several thousand non-union employees, with
whom it reached new, consensual labor terms last week.
The bankruptcy is In Re Patriot Coal Corp, U.S. Bankruptcy
Court, Eastern District of Missouri, No. 12-51502.