(Reuters) - A federal appeals court on Wednesday said Peabody Energy Co must remain on the hook for retiree benefit costs for 3,100 retired workers at a unit of Patriot Coal Corp, its former subsidiary now in bankruptcy.
The decision, handed down by the Eighth Circuit Bankruptcy Appellate Panel, reverses an earlier ruling that abrogated Peabody’s agreement to fund those costs.
The reversal is a small victory for workers in their fight against Peabody, which they allege knowingly bankrupted Patriot by spinning it off in 2007 with heavy debts and few strong assets.
Overall, though, coal miners are still expected to sustain major cuts to benefits as a result of Patriot’s collapse.
“This is a bright ray of good news in what has been a long, dreary period for the retirees,” Cecil Roberts, president of the United Mine Workers of America, said in a statement on Wednesday.
Peabody created Patriot through a 2007 spin-off, agreeing to continue funding benefits for a group of 3,100 retirees at Patriot’s Heritage unit.
In a statement, Patriot Chief Executive Bennett Hatfield said he was “pleased” with the ruling. “Peabody should not be permitted to use Patriot’s bankruptcy to escape its healthcare obligations to thousands of retirees,” Hatfield said.
Patriot declared bankruptcy in 2012, saying it needed $150 million in annual labor cost savings to regain profitability.
In May, it got permission from bankruptcy Judge Kathy Surratt-States to abandon its current labor and retiree obligations with an eye toward implementing more affordable ones. In granting that request, Judge Surratt-States also abrogated Peabody’s commitment to fund the Heritage group benefits.
She said that while the funding for the benefits was coming from Peabody, the responsibility to pay remained with Heritage, and that Patriot’s request to abandon that responsibility could not be parsed out to include some retiree groups and not others.
The appellate panel disagreed, saying Heritage and Patriot expressly exempted the Heritage group from their efforts to abrogate benefits.
“Not only did Heritage’s motion not request approval to modify the assumed retirees’ benefits, it specifically requested that the court not grant it such approval,” the panel said.
The details of the Heritage group’s benefits remained unclear. Under a new labor deal between Patriot and the United Mine Workers, retiree benefits are transferred to an outside trust. But due to the panel’s ruling, the Heritage group would not be a part of the trust. Instead, the agreement requiring Peabody to fund the group’s benefits would remain in place, meaning the sides may have to negotiate details of benefits under the new plan.
Peabody in a statement acknowledged the uncertainty, but said it was “pleased” with the panel’s ruling.
“The panel did not rule on how Peabody’s level of funding would be determined with this new labor agreement in place,” the company said. “Now that a new labor agreement has been approved, the provisions of the contract with Patriot will apply and any future funding levels are yet to be determined.”
The new deal will give the United Mine Workers an equity stake in post-bankruptcy Patriot, which it could sell to help fund healthcare benefits under the trust.
The United Mine Workers, which represent 1,700 current Patriot workers and 13,000 retirees and their relatives, have fought tooth and nail to salvage benefits during Patriot’s collapse. In a separate lawsuit, it has said Peabody should remain on the hook for all labor and benefit costs that Patriot cannot pay.
Reporting by Nick Brown; Editing by Maureen Bavdek and David Gregorio