The Eleventh Circuit wrote a highly complex opinion describing when liabilities that seemingly arose recently were actually discharged in bankruptcy decades earlier.
The majority’s holding comes down to this: Affiliates of a coal producer discharged their joint liabilities under the Coal Act to pay health care benefits for miners by having emerged from chapter 11 in 1995, even though the coal miner itself only stopped paying the benefits in 2016.
In other words, according to the majority, the claims against the affiliates for payments toward health care benefits had been discharged in 1995, although the obligation for the affiliates to make the payments only arose in 2016.
The majority opinion and the dissent combine to represent an obtuse exposition of the competing concepts pinpointing the time when a claim arises and is discharged.
The Coal Act Claims
Coal producers were going out of business right and left, depriving coal miners of their health care benefits. In 1992, Congress enacted the Coal Act, which made “related persons” jointly and severally liable for health care benefits no longer being paid by a coal producer.
In 1989, a coal producer and its affiliates went into chapter 11. They all confirmed a plan in 1995. Under the plan, the coal producer alone shouldered ongoing responsibility for providing health care. The affiliates split off from the coal producer several years after confirmation.
There was no dispute that the affiliates were “related persons” theoretically liable for health care benefits once the coal producer stopped paying for them.
The coal producer filed a second bankruptcy in 2015 and stopped paying for health care benefits in 2016. Aiming to compel the former affiliates to pay the benefits, the fund established by the Coal Act to pay benefits sued the affiliates in district court in Washington, D.C.
The affiliates responded by reopening their 1989 bankruptcies and arguing that their liabilities under the Coal Act had been discharged by the plan in 1995. Affirmed in district court, the bankruptcy court granted summary judgment for the fund by ruling that the claims had not been discharged.
The Majority Opinion
In a 26-page opinion for the majority, Circuit Judge William Pryor reversed, ruling that the claims against the affiliates had been discharged in 1995.
To Judge Prior’s way of thinking, the outcome of the appeal depended on whether there was a claim against the affiliates in 1995. If there was a claim in 1995, then it was discharged, he reasoned.
Judge Pryor began from the proposition that the definition of a claim in Section 101(5) is given the broadest meaning. He said that the discharge of the affiliates’ liability on a claim based on their conduct before confirmation depended on whether there had been a relationship between the affiliates and the fund before confirmation.
Simply put (but explained in detail in later pages), Judge Pryor said that the fund
held “claims” for future [benefits] in 1995 because their right to payment was based on the [affiliates’] pre-confirmation conduct. In 1995, the [affiliates’] liability to the retirees had already been fixed; only the amount owed was uncertain.
The amount of the eventual claim in 1995 was “uncertain,” Judge Pryor said, but the uncertain amount only meant that the claim was contingent, and contingent claims are discharged.
The opinion by Judge Pryor may represent a split with the Second Circuit in LTV Corp. v. Shalala (In re Chateaugay II), 53 F.3d 478 (2d Cir. 1995). There, he said, the New York-based appeals court held that post-confirmation liability under the Coal Act was not dischargeable.
Judge Pryor found the Second Circuit’s opinion “unpersuasive” because “our sister circuit failed to provide any rationale for its holding.” He read the Second Circuit as saying that premiums under the Coal Act were nondischargeable taxes.
Even if the liabilities were taxes, Judge Pryor said, the affiliates’ liability would rest entirely on their pre-bankruptcy conduct and would be discharged. He said that Chateaugay II “has no bearing on when claims for those premiums arise.”
Judge Pryor reversed and remanded.
The Dissent
Circuit Judge R. Lanier Anderson, III dissented in a 15-page opinion. He said that the obligation to fund an individual employer plan under Section 101(5)(B) or a so-called 1992 Plan premium did not arise until 2016 and was not discharged in 1995.
Judge Anderson latched on to Section 101(5)(B). The subsection, he said, means there is a claim only if an equitable remedy gives rise to a right to payment.
“Before there is a ‘breach of performance’ by the debtor,” Judge Anderson said, “the creditor can have no ‘right to an equitable remedy.’” Since the relevant breach occurred in 2016, “the claim arising out of that breach cannot have been discharged in 1995.”
Judge Anderson saw the majority’s opinion as being “in tension with the established law that a bankruptcy confirmation plan does not discharge claims that arise on account of post-confirmation conduct of the debtor.”
Judge Anderson “respectfully” dissented because, in his view, the “breach occurred in 2016, [and the affiliates’] 1995 bankruptcy confirmation could not discharge the . . . claim arising from it.”
The Eleventh Circuit wrote a highly complex opinion describing when liabilities that seemingly arose recently were actually discharged in bankruptcy decades earlier.
The majority’s holding comes down to this: Affiliates of a coal producer discharged their joint liabilities under the Coal Act to pay health care benefits for miners by having emerged from chapter 11 in 1995, even though the coal miner itself only stopped paying the benefits in 2016.
In other words, according to the majority, the claims against the affiliates for payments toward health care benefits had been discharged in 1995, although the obligation for the affiliates to make the payments only arose in 2016.
The majority opinion and the dissent combine to represent an obtuse exposition of the competing concepts pinpointing the time when a claim arises and is discharged.