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The Eighth Circuit Court of Appeals ruled that Peabody Energy must continue to pay benefits to 3,100 Patriot Coal retirees after Patriot split from its once-parent company and filed for bankruptcy.
The three-judge appellate bankruptcy panel overturned a lower bankruptcy court ruling in favor of Peabody Energy, which held the company no longer was obliged to pay the benefits. That ruling was linked to the bankruptcy of Patriot Coal Corp.
Much Needed Background
At one time, Peabody Holding, Patriot Coal and Heritage Coal were all Peabody Energy subsidiaries. After a strategic spin off, only Peabody Holding remained with parent Peabody Energy, while Heritage now operates under the Patriot Coal umbrella.
(Trust me, you need that background to make sense of it all.)
Before the strategic spin off, Peabody Holding entered into an acknowledgment and assent agreement with the United Mine Workers of America. The agreement stated that Peabody Holding would be "primarily obligated" to pay for the benefits for approximately 3,100 of Heritage's retirees.
Last year, Patriot filed for bankruptcy protection, in large part because of the health-care and pension liabilities it assumed in taking over Peabody coal mines.
Then came the conflict...
Breaking Up Is Hard to Do
Earlier this year, Patriot sued Peabody, seeking to ensure Peabody didn't try to use the bankruptcy to avoid the debated health-care obligations.
The bankruptcy panel aptly equated the dispute to a "once amicable divorce gone awry" in which they disagree about the nature of their dissolution agreement after one of them has experienced a change in circumstances -- here, bankruptcy.
Unfortunately, they couldn't hug it out.
No Bankruptcy Loophole for Peabody
So, does the nature of a liabilities assumption agreement fundamentally change when one party enters bankruptcy and modifies its benefits as part of the bankruptcy process?
The lower court thought so. The lower bankruptcy court held that Peabody Holding's obligations would be affected by Patriot's bankruptcy-related modification of the retirees' benefits.
But the Eighth Circuit panel begged to differ.
Even though Patriot had to modify the retirees' benefits as part of its bankruptcy process, Peabody's obligations under the liabilities assumption agreement were left unaffected by Patriot's bankruptcy modification.
At the end, Peabody still had responsibility to pay for health-care benefits to miners who worked for Heritage Coal.
Bottom-line: No bankruptcy loophole for Peabody.
It's not all bad news for
the Peabody. The panel didn't rule on the level of funding required to meet future obligations, a Peabody spokesman noted, according to The Charleston Gazette. spurned divorcée
Also, the court found the company was obligated to make the payments until a new labor agreement was approved between Patriot and the United Mine Workers of America -- an agreement which was reached recently.