CHARLESTON, W.Va. -- A federal bankruptcy judge in St. Louis ruled Wednesday that Patriot Coal can cut health benefits for retired coal miners and their spouses as part of a plan for the company to emerge from bankruptcy.
In her ruling, U.S. Bankruptcy Judge Kathy A. Surratt-States said that Patriot can throw out contracts negotiated with the United Mine Workers of America, and move current "retiree health care to the UMWA Retiree Healthcare Trust, which shall be structured as a Voluntary Employee Beneficiary Association."
The ruling specifically approved Patriot's "motion to reject collective bargaining agreements and to modify retiree benefits."
The Surratt-States ruling will allow Patriot to make changes to benefits for both working and retired miners under existing contracts. It will allow Patriot to adjust wages and benefits, as well as "work rules for union employees to a level consistent with the regional labor market," according to a statement from the company.
The UMWA had argued Patriot Coal was created in October 2007 to hire all union workers who previously worked for Peabody Energy and Arch Coal east of the Mississippi River. The new company assumed responsibility for the health insurance of union miners who had already retired from Peabody and Arch.
Patriot filed for Chapter 11 bankruptcy in July 2012. UMWA officials have consistently said Patriot was designed to fail.
Patriot officials, as well as officials from Peabody and Arch, have denied that claim. Company officials have said Patriot cannot emerge from bankruptcy unless miners and retirees accept cuts to their health benefits.
In her opinion, Surratt-States asks, "Was Debtor Patriot Coal Corporation created to fail? Maybe not. Maybe."
Patriot's executives, she wrote, may have "thought the liabilities were manageable." She also noted that while "unions generally try to bargain for the best deal of their members ... there is likely some responsibility to be absorbed for demanding benefits that the employer cannot realistically fund in perpetuity."
UMWA President Cecil Roberts said the union would appeal Wednesday's ruling to U.S. District Court. Roberts called Wednesday's ruling "wrong, unfair and fails to fully recognize the coming wave of human suffering that will be experienced by thousands of people throughout the coalfields.
"As often happens under American bankruptcy law, the short-term interests of the company are valued more than the dedication and sacrifice of the workers, who actually produce the profits that make a company successful," Roberts said.
Bennett K. Hatfield, president and chief executive officer of Patriot, called the bankruptcy ruling "a major step forward for Patriot, allowing our company to achieve savings that are critical to our reorganization and the preservation of more than 4,000 jobs.
"The savings contemplated by this ruling, together with other cost reductions implemented across our company, will put Patriot on course to becoming a viable business," Hatfield said in a statement late Wednesday afternoon.
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Wednesday's ruling allows Patriot to stop paying the union-negotiated retiree health-care benefits as early as July 1.
But Hatfield said Patriot will continue operating under current UMWA contracts in the immediate future.
"Patriot management will continue diligent negotiations with the UMWA leadership to address their concerns about our court-approved proposals," Hatfield said. "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."
Hatfield also said that the company's obligations under the 1992 Coal Industry Retiree Health Benefit Act, and to retirees who receive black lung benefits, would not be affected.
In her ruling, Surratt-States also criticized Congress for not imposing stricter controls on collective-bargaining agreements. She noted that when members of Congress passed the Employee Retirement Income Security Act in 1974, it "could have incorporated pre-funding requirements for health benefits as it did for pensions ... but it did not."
Josh Sword, secretary-treasurer of West Virginia AFL-CIO, criticized the decision. "This is not good. It proves that the real problems we have are the laws on the books related to bankruptcy. Congress needs to act and act quickly," he said. "When laws like this treat human beings like that, we have a real problem on our hands. We need bankruptcy reform now."
Sen. Jay Rockefeller, D-W.Va., agreed that "the bankruptcy system is stacked against the American worker."
"I join the thousands of miners in our state who are deeply disappointed with today's ruling," Rockefeller said in a statement. "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. 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, D-W.Va., called the ruling a "travesty."
"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 in a statement. "I don't think bankruptcy laws were ever designed to shield corporations from their promises and responsibilities."
Roberts on Wednesday rejected the company's claim that the benefit cuts are needed for Patriot to emerge from bankruptcy.
"Patriot can survive as a viable and profitable company well into the future without inflicting the level of pain on active and retired miners and their families it seeks," he said. "Despite this ruling, the UMWA's effort to win fairness for these active and retired workers is by no means over."