UMWA files class action lawsuit against Peabody, Arch - Business, Government Legal News from throughout WV

UMWA files class action lawsuit against Peabody, Arch

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In the latest attempt to fulfill its promise to do "whatever it takes" to protect the retirement benefits owed by Patriot Coal, the United Mine Workers of America has filed a class action lawsuit against the company's progenitors.

The suit was filed Oct. 23 in the Southern District of West Virginia and asks the court declare Magnum Coal and Peabody Energy obligated to maintain funding of the benefit plans. The suit was filed by eight retired and active members of the UMWA but claims to represent more than 10,000 retirees and active workers.

The basis of their argument comes from the Employee Retirement and Income Securities Act, which prohibits discriminating against a beneficiary with the purpose of interrupting benefits obligated.

Patriot was spun off from Peabody Energy in a move that distanced the company not only from Central Appalachian coalfields but also most of its union employees. Mines spun off from Arch Coal into Magnum Coal were later acquired by Patriot.

A spokesperson for Peabody maintained that Patriot was a viable company at spin-off.

"As we have noted before, substantial events after that time, both inside and outside Patriot, significantly affected its future, from Patriot's transformational acquisition of Magnum Coal Company to Patriot's decisions to make significant changes in its capital structure," a Peabody spokesperson said. "Other factors were decreased demand for U.S. coal due to sharp declines in natural gas prices; the softening of the global steel markets; and more burdensome regulations. Patriot notes many of these same factors in its filings with the bankruptcy court."

The UMWA has insisted that Peabody's move created a company that was doomed to fail, taking with it several post-retirement obligations and improving its bottom line at the expense of their workers. Peabody has maintained that at the time of the Patriot spin-off, there was potential for great success, had coal markets not done so poorly.

"Peabody and Arch established separate spin-off companies, which have become today's Patriot Coal, with the publicly stated intention of getting rid of their obligations to the retirees who gave a lifetime of service to those companies," UMWA President Cecil E. Roberts said. "The companies bragged about getting those liabilities off their balance sheets.

"As people with long experience in the coal industry, they knew that the cyclical nature of the industry would inevitably lead to Patriot's inability to pay for those liabilities," Roberts said. "It was a company set up to fail. But under the law, that does not relieve Peabody and Arch of their obligation to these retirees, their spouses and their widows."

The suit alleges that Peabody glossed over the potential pitfalls to investors in its financial documents.

"Without Peabody's assumption of these healthcare obligations, Patriot would have shown a negative net worth on its pro forma financial statements, which would have both jeopardized the intended tax-free nature of the distribution of Patriot's shares to the shareholders of Peabody Energy and constituted an obvious fraud on Peabody's creditors," the suit states. "Upon information  and belief, in order to make Patriot appear solvent at the time of the spin-off, Peabody Energy assumed $615.8 million dollars of retiree healthcare and other liabilities, while transferring $557 million in retiree healthcare liabilities to Patriot.  As of Dec 31, 2011, the present value of the retiree healthcare obligations Peabody assumed at the time of the spin-off was $697 million."

Following the spinoff, Peabody made a point of its lower legacy liabilities to investors. This, the UMWA asserts, is proof Peabody was aware of the toxicity of Patriot assets.

"In view of the realities of the transaction and the cyclical nature of the price of coal, it was inevitable that Patriot would eventually fail under the weight of its retiree healthcare and other legacy obligations," the suit states.

Patriot is currently going through Chapter 11 bankruptcy reorganization. Benefits to retirees are not guaranteed to change under bankruptcy, but the likelihood of post-retirement obligations going untouched is unlikely.

In an interview with the State Journal last week, Trent Cornell, an attorney with Pedersen and Houpt in Chicago, a non-union attorney who regularly represents non-union employees in large bankruptcies, said the retirement benefits will likely be examined.

"It would be unbelievable to me that this case would emerge from bankruptcy without going after the union and non-union benefits," he said.  

Arch Coal declined comment on the suit. 

"Since the matter is in active litigation, we must refrain from commenting at this time," said  Kim Link, spokeswoman, Arch Coal, Inc.

 

 

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