Meet the St. Louis bankruptcy chief who aims for pragmatism

(Reuters) - After a decade on the bench, St. Louis's Chief U.S. Bankruptcy Judge Kathy Surratt-States was caught between a coal company that was trying to reduce pension benefits and retired miners who were aghast at the proposal. All eyes were on her as she tried to balance the reality of a company burdened with unsustainable debt and its obligations to its miners. In the end, she approved the company's plan, a difficult decision that she stands by.

But it wasn’t easy. In deciding what to do about pension benefits in St. Louis-based Patriot Coal's first Chapter 11 case (it filed a second time a couple of years later, selling its assets to another coal producer) she read more than 900 letters from miners and their families, which often detailed the personal and financial hardships they endured.

In a recent interview with Reuters, Surratt-States said she would note at every hearing how many letters she had received: “I thought it was important that those people had written to me, that I read those letters and that we acknowledged their part and opinions in the case.”

Patriot Coal was one of the most high-profile cases Surratt-States, 54, had presided over since joining the bench in 2003. She made headlines in 2013 with her approval of the pension cuts, which had prompted staunch opposition from the United Mine Workers of America. Pension cuts for miners had become a hot topic as other large coal producers trickled into bankruptcy.

AN EARLY START

Unlike many lawyers and judges who turn to bankruptcy later in their careers, Surratt-States got her first taste of the practice area early, taking a job in the U.S. Bankruptcy Court for the Eastern District of Missouri after her first year of law school. She took on what she calls the “rather unglamorous job” of reorganizing the law clerks’ library.

Despite the somewhat unexciting nature of the role, she enjoyed the work. Bankruptcy judges would sometimes tell her about interesting cases they were overseeing, which led her to slip into the back of their courtrooms and witness the action first hand.

Surratt-States would eventually become the first Black bankruptcy judge in the judicial districts that comprise the 8th U.S. Circuit. She said she was excited to introduce some diversity to an area where "there weren't a lot of women and certainly not a lot of people of color."

At the time, she was only the eighth Black bankruptcy judge in the country, out of a total of about 350. There are now 17.

While she believes the bankruptcy bar is headed in the right direction in terms of diversifying its makeup, there’s still a ways to go, she says. That will likely need to start with building up a pipeline that begins with summer associates at law firms, she added.

FAMILY MATTERS

Surratt-States grew up in Tulsa, Oklahoma and is a graduate of Booker T. Washington High School. Her mother was a schoolteacher and her father an aircraft mechanic at American Airlines (which itself filed for bankruptcy in 2011.)

Her parents stressed the importance of education, and she ultimately became the first lawyer in her family. She graduated from Oklahoma City University in 1988 with a degree in political science and earned her law degree from Washington University School of Law in 1991.

Surratt-States, who is married to a St. Louis police department lieutenant, spent two years clerking at the St. Louis bankruptcy court after she graduated from law school. She later practiced bankruptcy and commercial litigation at Campbell & Coyne, followed by Ziercher and Hocker. Following her 2003 appointment to the bench, she became the chief judge in 2012.

Her daughter is now a sophomore in college studying film production. Surratt-States is proud of the fact that when a group of her daughter’s classmates recently watched Ferris Bueller’s Day Off – one of the judge’s favorite movies – her daughter was one of the few who had seen the film. (The Blues Brothers is the judge’s other favorite.)

“She told the rest of them, ‘Don’t worry, it’ll be fine. It's a great movie,'” Surratt-States said.

MAKING THE HARD CALLS

Since most of the cases on the St. Louis docket are consumer bankruptcies, Surratt-States spends a lot of her time confronting family troubles. The judge says as challenging as Patriot Coal was, the individual debtors often present the toughest situations for her.

Consumer cases are especially hard if they involve domestic support obligations or children, she said.

“Those are always difficult – to look at what happened with people who may have been in family court versus what's going on their lives now that one of the parties is in bankruptcy,” she said.

Sometimes that means dealing with a debtor that's trying to hold on to a house or keep a family afloat when money has become tight, thanks to the pandemic, she said.

The good news, she said, is that she's noticed Chapter 13 trustees have been more lenient with individual debtors during the COVID-19 crisis, giving them more time to sort out their finances or get their hands on necessary tax documents.

On the corporate side of the docket, the Patriot Coal decision posed a different kind of challenge. Approving the company’s request to modify its benefits for thousands of retirees and their families meant ceasing pension contributions and replacing existing health benefits with a voluntary employees’ beneficiary association. The issue was especially sensitive as the company’s executives had recently been approved for bonuses. The United Mine Workers of America threatened to strike.

Surratt-States issued her decision after a five-day trial. In the ruling, she posited that the situation may have been the result of "unwarranted optimism" by executives, but that for unions, there is "likely some responsibility to be absorbed for demanding benefits that the employer cannot realistically fund in perpetuity."

The bottom line, she said, was the practicality of the situation. Patriot Coal, which was dealing with a $3 billion debt load at the time, simply could not afford to continue paying for health insurance at the level agreed to under the collective bargaining agreement.

“Coal prices went down and expenses went up,” Surratt-States said. “So as a practical matter, are they going to have no insurance or some insurance going forward? That’s basically what it was going to come down to.”

Read more:

Bankrupt Patriot Coal can reject collective bargaining -court

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