Judge: Patriot proposal fair given bankruptcy - Business, Government Legal News from throughout WV

Judge: Patriot proposal fair given bankruptcy

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While the union is adamant the fight is not yet over, a bankruptcy judge says Patriot's proposal was fair and offers a reasonable plan for emerging from bankruptcy.

The United Mine Workers of America and Patriot Coal have been negotiating for months on a way to deal with the massive liabilities posed by union contracts at Patriot operations as the company goes through bankruptcy. The ruling issued by U.S. Bankruptcy Judge Kathy A Surratt-States allows Patriot Coal to proceed with its proposal to break that agreement and modify retirement benefits, although the two parties never came to an agreement.

Patriot Coal's Ben Hatfield said in a statement issued after the ruling that the company will continue to negotiate with the union.

"For the coming days, we plan to continue operating in the normal course under our current UMWA contracts. Patriot management will continue diligent negotiations with the UMWA leadership to address their concerns about our court-approved proposals," continued Hatfield.  "While the Court has given Patriot the authority to impose these critical changes to the collective bargaining agreements, and our financial needs mandate implementation by July 1, we continue to believe that a consensual resolution is the best possible outcome for all parties."

Currently, the ruling points out, retiree benefits consume double Patriot's revenue.

The decision from the bankruptcy judge, who wrote that the union overreached on some aspects of its negotiation and is better served with Patriot's proposal than liquidation, elicited a negative response from West Virginia Democrats in Washington.

Officials angered

Sen. Jay Rockefeller said he was disappointed in the ruling, which he said shows that the "bankruptcy system is stacked against the American worker."

"I will continue fighting to put workers and employers on a level playing field by closing the legal loopholes that allow companies to pad their profits while abusing the legal system to escape from the promises they made," Rockefeller said. "It's tragic to watch how some industries treat their workers after they've given much of their lives to these companies."

Sen. Joe Manchin called the ruling a "travesty" and said he would continue to fight for "fairness in the bankruptcy system."

"It is wrong that Peabody can set up a company such as Patriot, fill that company with its liabilities and then spin that company off for the sole purpose of avoiding its contractual and moral obligations to its workers," Manchin said, referring to the 2007 spinoff of Patriot Coal that divided Peabody's eastern and western operations. "I don't think bankruptcy laws were ever designed to shield corporations from their promises and responsibilities."

Bankruptcy law only required that Patriot worked in good faith to find a compromise with the union that would allow the company to emerge from bankruptcy. The UMWA said it presented a business model that it would agree to and allow Patriot to emerge from bankruptcy, but that was rejected by the company and the bankruptcy judge.

Rep. Nick Rahall, D-W.Va., said coal miners have a right to "retire and live in dignity" and that Congress can't stand by as they are taken away. Rahall and Rockefeller have recently introduced the Coalfield Accountability and Retired Employee Act, which would make any retiree who loses benefits following a bankruptcy or insolvency of their employer eligible for a benefit plan under Coal Act.

What's on the table?

Despite some confusion to the contrary, Patriot Coal is not proposing to completely drop benefits and health care for union miners. In writing her decision, Surratt-States wrote she understands the effect bankruptcy could potentially have on the miners and their families.

"There can be no Patriot Coal stock to dispute, or tonnage payments to negotiate, or companies to reorganize, unless there are men and women willing to bend their knees and excavate coal," Surratt-States wrote.

The court received about 900 letters describing the "horrendous" conditions in coal mines and the sacrifice coal miners make in their jobs. Surrat-States said none of those letters or comments had been "lost on this Court."

In a recent proposal, Patriot proposed a 35 percent equity stake in the company. That stake could be monetized in whole or part to fund a Voluntary Employee Beneficiary Association. The VEBA Trust, Patriot says, could be worth hundreds of millions of dollars. The union requested a 57 percent equity stake and, according to the ruling released Wednesday, both parties are negotiating the percentages of equity that could be allocated to Patriot.

While the judge gave Patriot authority to alter union benefits as soon as July 1, in its fifth and most recent proposal presented to the union, the company said it would allow the UMWA until Jan. 1, 2014, to transfer its members to the VEBA. That, Patriot said, gives the UMWA time to monetize the stake and determine optimum coverage levels.

The proposal also includes a profit-sharing mechanism and a royalty paid to the union on every ton of coal. The proceeds from the royalty would also help fund the VEBA.

Already Patriot Coal has idled mines and decreased production by nearly 6 million tons of thermal and metallurgical coal at its less profitable operations. Savings of about $11.3 million per year were achieved by eliminating 78 management personnel.

Non-union employees have also already received major cuts to their health care coverage and long-term disability benefits.

With all those changes, Patriot's advisors calculate that the company still falls short of needed annual savings by about $150 million. Patriot's advisor told Surrat-States that the company would liquidate in late 2103 or early 2014 if those savings are not achieved.

Patriot proposes to achieve the needed $150 million per year with elimination or reduction of scheduled wage increases and reduction of wages for union employees, including adjustments to shift differential payments and adjustments to overtime and other premium pay. Patriot also proposes elimination of a 20-year service payment, retiree bonus plan contributions, New Inexperienced Miner Payments, retiree bonus account payments and a 20-year service bonus.

Under the proposal, Patriot would make contributions equal to 6 percent of gross hourly wages to a 401(k) or similar plan. The proposal would also guarantee wage increases for union miners if nonunion miners were given increases above levels paid to the UMWA.

The company would reduce the number of holidays, vacation days and sick days per year. Under current agreements, a miner can take off up to 47 days per year. A more stringent attendance policy would also be enforced.

Health care under the National Bituminous Coal Wage Agreement would also be eliminated and replaced with a 90/10 Plan the company described as "still-generous, but less costly." Extended health care after a layoff would be significantly reduced, and the company would cease to pay into the 1993 Benefit Trust Contributions.

The remaining $75 million Patriot said it needs to cut would come from establishment of a Voluntary Employee Beneficiary Association, or VEBA. Those who receive benefits under Coal Act would not be affected.

The plan also includes a Litigation Trust to pursue claims against Peabody Energy, which has denied claims that Patriot was spun off purely to shed costly liabilities.

The testimony of Thomas Terry, president of TTerry Consulting, found that Patriot's proposal for health coverage "will be at least as generous as the norm in the United States and more than generous than average large U.S. company because of the cost-sharing features of the proposed plan."

Counter testimony suggested that it is inappropriate to compare health care plans of other industries to coal mining because of special needs. Terry also found that Patriot's proposal was consistent with other coal companies as well.

In its most recent counter proposal, the UMWA sought a 57 equity stake in Patriot, an annual cash payment of 7.5 percent of earnings, and right to deny compensation increases of any employee without the UMWA's consent.

"This Court could never conclude that the UMWA-centric Fourth Counterproposal is fair and equitable to all stake holders," the ruling states in rejecting the UMWA's counterproposal adding that "none of the UMWA counterproposals were even in the neighborhood of the required savings."

The union said in a statement that it plans to appeal the decision.


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