ST. LOUIS – A federal appeals court has ruled that Peabody Energy must continue to pay benefits to some Patriot Coal retirees after Patriot Coal split from its once-parent company and filed for bankruptcy.

A three-judge panel on the U.S. Court of Appeals for the Eighth Circuit decided Aug. 21 to overturn a bankruptcy court decision in favor of Peabody Energy, which argued it should be absolved from paying health care benefits to 3,100 retirees of Heritage Coal.

Heritage and Patriot were once subsidiaries of Peabody. Following a 2007 split, Heritage is now a subsidiary of Patriot.

During the split, Peabody entered into an agreement with the United Mine Workers of America that stated it would be “primarily obligated” to pay the benefits for the Heritage retirees. It also entered into a liabilities assumption agreement with Heritage.

During Patriot’s bankruptcy proceedings, the company sought a judgment that declared Peabody’s obligations with respect to the health care benefits owed to the retirees will not be affected by modification of the benefits of retirees of Heritage.

U.S. Sen. Jay Rockefeller, D-W.Va., praised the decision.

“Peabody’s attempt to shed its obligations to union miners was unjust, unfair and unconscionable,” he said.

“I’m incredibly pleased that an appeals panel recognized that and overturned a decision that would have broken solemn promise Peabody made. It’s another ray of hope for retirees who worked day and night to provide for their families.”

After the lower court ruling against them, Patriot and Heritage appealed, arguing Peabody is the primary obligor of the assumed liabilities.

Peabody argued that the liabilities were Heritage’s under a “me too” agreement, and that the appeal will become moot once a new labor agreement is reached with UMWA.

The Eighth Circuit’s decision said a statute prohibits the bankruptcy court from modifying benefits to a level below what was proposed by the debtor.

“While Heritage sought bankruptcy court approval to modify some of its retiree benefits obligations, Heritage was adamant that its motion did not seek to modify the assumed retirees’ benefits,” says the decision, authored by Judge Robert J. Kressell.

“Heritage emphatically and repeatedly stated as much at the hearing. In the 1114 proposal, Heritage stated that ‘the 1114 Proposal shall not apply to the Peabody-Assumed Group’ so long as Patriot’s relief for its own retirees under 1114 does not permit Peabody to reduce its obligations.

“It is clear to us that the legal effect of this so-called carve-out language is that not only did Heritage’s motion not request approval to modify the assumed retirees’ benefits, it specifically requested that the court not grant it such approval.

“With such a request in the motion, those benefits remain undisturbed by the court’s order granting Heritage permission to modify the rest of its retirees’ benefits.”

Rockefeller noted that earlier this year, he introduced The Coal Accountability and Retired Employee Act, which he says would hold employers accountable for benefits commitments they make.

It also would transfer funds from the Abandoned Mine Land Fund to the UMWA 1974 Pension Plan, make any union retiree who loses benefits following the bankruptcy of his or her employer eligible for the 1992 Benefit Plan and provide that employer contributions are not unfairly penalized by the tax code, he says.

Peabody said it was pleased with the ruling and noted the court did not rule on how Peabody's level of funding would be determined in a new labor agreement between Patriot and UMWA.

"Now that a new labor agreement has been approved, the provisions of the contract with Patriot will apply and any future funding levels are yet to be determined," the company said in a statement.

From the West Virginia Record: Reach John O’Brien at jobrienwv@gmail.com.

More News