Largely following the Eleventh Circuit’s analysis in Walter Energy, the Fifth Circuit decided that the Coal Act does not bar an operator of a coal mine from modifying or eliminating retirees’ health benefits under Section 1114 of the Bankruptcy Code as part of a sale. See In re Walter Energy Inc., 911 F.3d 1121 (11th Cir. Dec. 27, 2018), cert. denied, United Mine Workers of America Combined Benefit Fund v. Toffel, 139 S. Ct. 2763 (June 24, 2019).
As Circuit Judge Gregg Costa said in his August 4 opinion for the New Orleans-based appeals court, the ability of a coal producer to terminate retiree health benefits does not mean retirees will not receive health care. Rather, it means that “the government — that is, the taxpayers — will have to pick up the slack.”
To read ABI’s report on the Eleventh Circuit Walter Energy opinion, click here. To read about the denial of certiorari, click here.
Preemptive Strike Fails
A coal producer initiated a chapter 11 reorganization designed to sell the assets. All of the potential buyers conditioned their bids on cutting off successor liability that the purchaser otherwise would have for making contributions for retirees’ health benefits under the 1992 Coal Act.
The retirees’ union benefit fund drew first blood by filing a complaint in bankruptcy court for a declaration that the Coal Act prohibits terminating coal miners’ retiree benefits under Section 1114 of the Bankruptcy Act. The union argued in part that the Coal Act made an exception to Section 1114, which was enacted four years before the Coal Act.
In late December 2018, the Eleventh Circuit handed down Walter Energy. Judge Costa characterized the Atlanta-based appeals court as ruling “that Coal Act obligations were ‘retiree benefits’ subject to modification under section 1114.”
“Two days [after Walter Energy came down,] the bankruptcy court issued an opinion arriving at the same conclusion,” Judge Costa said. The bankruptcy court certified the judgment for direct appeal to the circuit, and the circuit accepted the appeal.
Fifth Circuit Tracks the Eleventh’s Analysis
Judge Costa’s analysis follows the Eleventh Circuit’s. He decided that the payment obligations were not taxes. Were they taxes, the Anti-Injunction Act might bar the bankruptcy court from issuing an injunction barring collection.
Not willing to create a circuit split, Judge Costa took “side[s] with the other two courts of appeal[s] to decide the issue.” He therefore held that “because bankruptcy court is the only place a debtor can use section 1114 to modify its Coal Act obligations, the AIA does not bar adversary proceedings seeking to do so.”
Turning to the merits, Judge Costa noted “that all courts to consider the question have held that Coal Act obligations are subject to modification.” He cited Walter Energy alongside bankruptcy court decisions from Virginia and Kentucky.
Judge Costa overruled several arguments proffered by the union on the merits. Rather than restate his analysis that largely follows the Eleventh Circuit’s, click here to read the ABI report on Walter Energy.
No Issue Preclusion
The debtor raised an intriguing argument based on issue preclusion, or collateral estoppel. Because the same union lost in Walter Energy, the debtor contended that the union was precluded from relitigating the identical question in another circuit.
Judge Costa observed that the usual criteria for invoking issue preclusion were present. “But something seems amiss,” he said.
Judge Costa found an exception in the Restatement (Second) of Judgments. Because the case presented only questions of law, he found that issue preclusion was “inappropriate both because the other court that decided them was a fellow intermediate federal court and because they are important ones the Supreme Court has not decided.”
If issue preclusion applied, there could never be a circuit split in cases where, for instance, the government is a litigant. He therefore ruled that “[i]ssue preclusion thus does not bar the [union’s] suit.”
Although Walter Energy did not compel the result, Judge Costa said that “the Eleventh Circuit’s recent decision [is] persuasive authority. That is no small thing.”
He affirmed the bankruptcy court, observing that “[o]ur usual reluctance to create circuit splits is even more pronounced in bankruptcy cases where the need for uniformity is a constitutional command.”
Largely following the Eleventh Circuit’s analysis in Walter Energy, the Fifth Circuit decided that the Coal Act does not bar an operator of a coal mine from modifying or eliminating retirees’ health benefits under Section 1114 of the Bankruptcy Code as part of a sale. See In re Walter Energy Inc., 911 F.3d 1121 (11th Cir. Dec. 27, 2018), cert. denied, United Mine Workers of America Combined Benefit Fund v. Toffel, 139 S. Ct. 2763 (June 24, 2019).
As Circuit Judge Gregg Costa said in his August 4 opinion for the New Orleans-based appeals court, the ability of a coal producer to terminate retiree health benefits does not mean retirees will not receive health care. Rather, it means that “the government — that is, the taxpayers — will have to pick up the slack.”
To read ABI’s report on the Eleventh Circuit Walter Energy opinion, click here. To read about the denial of certiorari, click here.
Preemptive Strike Fails
A coal producer initiated a chapter 11 reorganization designed to sell the assets. All of the potential buyers conditioned their bids on cutting off successor liability that the purchaser otherwise would have for making contributions for retirees’ health benefits under the 1992 Coal Act.
The retirees’ union benefit fund drew first blood by filing a complaint in bankruptcy court for a declaration that the Coal Act prohibits terminating coal miners’ retiree benefits under Section 1114 of the Bankruptcy Act. The union argued in part that the Coal Act made an exception to Section 1114, which was enacted four years before the Coal Act.