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Corporations have reneged many times before on pledges for pensions and retiree medical benefits. This, however, this Patriot Coal bankruptcy, is a new twist on that old scam. It’s alarming because what the bankruptcy court approved provides a template for companies angling to reduce costs by abandoning their commitments to retirees. It’s a swindle that must be stopped

When a kid snatches an old lady’s purse, it’s punished as a crime. But when a corporation manipulates bankruptcy law to deny thousands of retired coal miners benefits they labored their entire lives to earn, it’s endorsed by federal court.

Late last month, a bankruptcy judge sanctioned a scheme in which corporations create shill companies with a dram of assets and a sea of retiree responsibilities. Such a debt-burdened outfit quickly goes bust. Bankruptcy court, the judge said, can’t consider the intent of a company’s creation, but can approve a plan to reorganize it by betraying decades of promises to retirees.

Corporations have reneged many times before on pledges for pensions and retiree medical benefits. This, however, is a new twist on that old scam. It’s alarming because what the bankruptcy court approved provides a template for companies angling to reduce costs by abandoning their commitments to retirees. It’s a swindle that must be stopped.

Of course, lots of people get hurt in bankruptcies, not just workers. All kinds of creditors – from the local accounting firm to the big copy paper provider – get stuck with cents on the dollar owed. But this case, the Patriot Coal Corp. case, is different. That’s because Patriot’s bankruptcy was deliberate. Peabody Energy kneecapped Patriot on purpose at the outset.

“There can be no Patriot Coal stock to dispute, or tonnage payments to negotiate, or companies to reorganize, unless there are men and women willing to bend their knees to excavate coal.”

So said Bankruptcy Judge Kathy A. Surratt-States in her decision. Peabody and Patriot would not exist without those bended knees.

The judge also noted the suffering of workers, more than 900 of whom wrote to her:

“Many discuss the horrendous conditions of the coal mines when those individuals first began to work, and how hard it was to achieve the promises made pursuant to both the previous and the current CBAs (collective bargaining agreements). Some discuss how physically, mentally and emotionally grueling being a coal miner was, many of whom worked as coal miners for over 30 years – a sacrifice made with due consideration of the promised health care from cradle to grave. . .

“Many coal miners talk of six (6) and seven (7) day work-weeks, of over 12 hours a day. Some letters discuss various injuries sustained while working in coal mines, limbs of self and relatives lost, and the lives lost of relatives and friends. . .And, as counsel for the UMWA (United Mine Workers of America) so eloquently stated, many current and retired coal miners do not have cost spreading abilities, because, for many, cost spreading ‘means cutting your pills in half. Cost spreading abilities for retirees means making a choice today over medicine or food.’”

And then she said none of it mattered. She contended she was forbidden from considering that. She also insisted that under bankruptcy law she couldn’t take into account whether Peabody, the world’s largest private-sector coal company, deliberately established Patriot in such a way that it would fail so that it could receive sanction through bankruptcy to desert its retiree health care obligations.

Peabody “spun off” Patriot coal in 2007 in what sounds like a pretty bad deal for Patriot. Peabody gave Patriot 13.3 percent of Peabody’s coal reserves and 72 percent of Peabody’s health care liabilities.

Patriot showed a fondness for debt, however. In 2008, it bought Magnum Coal Co., a similarly debt-hobbled firm. Arch Coal set up Magnum in 2005 by giving it 12.3 percent of Arch assets and 96.7 percent of Arch’s retiree health care liabilities.

Five years after its creation, Patriot employs about 4,200 and bears inherited responsibility for five times that many retirees.

It’s no wonder then, that by 2010, saddled with debt loaded on it by both Peabody and Arch, Patriot began losing money. It filed for bankruptcy in 2012.

The bankruptcy judge explained it this way: “There are several events that catalyzed Debtors’ (Patriot’s) bankruptcy filing. Above all other reasons however are the liabilities that Debtors (Patriot) inherited from Peabody and Arch.”

Patriot’s obligations to retirees and their family members exceeded $1.6 billion. But more than 90 percent of the miners owed these benefits never worked a day for Patriot. They were employed by Peabody, Arch and their subsidiaries.

The bankruptcy judge approved a plan under which Patriot would replace that obligation with a $300 million fund – a fund worth less than 19 percent of what was promised the retirees. Also, Patriot would place in the fund royalty payments that the bankrupt company contends could be worth “tens of millions” of dollars. Finally, the UMWA would receive 35 percent ownership of the bankrupt company – an “asset” the court contended could be sold to help finance the retiree health care fund.

None of this gets close to covering $1.6 billion in obligations. Thousands of miners and retirees have protested Patriot’s efforts to escape its commitments, marching in the streets of St. Louis and Charleston, W.Va. And the UMWA, which represents about 60 percent of Patriot’s hourly workforce, has said it will appeal.

The judge noted that the bankruptcy code requires that the court treat all parties fairly and equitably and that this standard was intended to disperse the burden of saving a company and to ensure that debtors did not seek reorganization on the backs of retirees.

Still, the judge allowed Patriot to reorganize on the backs of retirees. And on the backs of current workers whose labor contract will be broken and whose pay and benefits will be slashed.

When employers promise pensions or retiree health care, workers count on it as deferred compensation. It is money earned now but received later. When a bankruptcy judge approves rescinding those earned benefits, the court grants the corporation authorization to take money out of workers’ wallets – permission to pickpocket. It’s a crime when committed on the street. It’s a crime bankruptcy courts should forbid when it’s clear the failed company was set up to go bust and rob retirees of earned benefits. If the UMWA loses on appeal, Congress must change the federal bankruptcy code to forbid this new method of mugging workers.

Poll

Of course corporations should be able to promise workers pensions and retiree health care and then just cancel those programs on a whim.

8%3 votes
91%34 votes

| 37 votes | Vote | Results

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Comment Preferences

  •  The average coal miner pension is about $30k/yr. (6+ / 0-)

    Their health care will now cost them about $6k/yr.

    This is a travesty. And, of course, the execs still got their bonuses and the bondholders for this sham transaction are first in line.

    And this crap is legal. Who writes the laws, again?

    Calling other DKos members "weenies" is a personal insult and therefore against site rules.

    by Bob Johnson on Wed Jun 12, 2013 at 07:34:14 AM PDT

  •  Well, well. Those who are so worried about the (3+ / 0-)
    Recommended by:
    cotterperson, Hillbilly Dem, cynndara

    deficit, bankruptcy courts and lawmakers who allow this bait-and-switch to happen, and all the nation's rightwingers who want to privatize Social Security to ensure that people will invest in these corporations, should forego their own pensions and do it with a smile.
    The fix is in, folks, so drink your poison without forgetting to toast what is called capitalism.

    Building a better America with activism, cooperation, ingenuity and snacks.

    by judyms9 on Wed Jun 12, 2013 at 07:37:16 AM PDT

  •  This one makes me so mad (4+ / 0-)

    it's hard to fully focus my mind on it; even my thoughts start coming out in angry gibberish. And the fact that these workers are so far from alone in what's been done to them.

  •  Corporations should be done away with, but if not (4+ / 0-)

    every CEO and CFO should be criminally liable and risk heavy jail time for this kind of racket.

    Fiscal conservative: a Republican ready to spend $5 to save a dime--especially if that dime is helping a non-donor.

    by Mayfly on Wed Jun 12, 2013 at 07:56:50 AM PDT

  •  So the nub of the case (4+ / 0-)

    comes down to the testimony of a PwC partner, who argued that the company was deliberately under-estimating the future profitability of the company.  As a result, the PwC Partner (testifying for the Union) argued that the company was seeking to make permanent changes to benefits that were not necessary.

    Blackstone, the representative of the company (do a search on political contributions - Blackstone's head is a Democrat) refused to really allow PwC to fully review the basis of their projection.  The court - showing little understanding for how economic modeling is done, accepted Blackstone;s analysis.

    From this dispute everything else follows.

  •  Legislators authorize the creation of (1+ / 0-)
    Recommended by:
    devis1

    corporations, artificial bodies which, like the legislatures themselves, are organized to immunize the individual participants from responsibility for the consequences of their decisions.
    We need to elect better legislators. Unemployed people should seriously consider running for public office.
    That judges will fix what legislators have screwed up is a deception, perpetrated by the same people who argue that it is the executive that sets policy. The rubber-stamp Congress and rubber-stamp legislatures all across the land are running a scam. On whose behalf?  Their own and the people who sponsored their candidacies.
    Look to your local chamber of commerce. That's where all the middlemen hang out.

    We organize governments to deliver services and prevent abuse.

    by hannah on Wed Jun 12, 2013 at 09:41:04 AM PDT

    •  You really think (0+ / 0-)

      that elections will be allowed to change ANYTHING?  Come, Hannah, I know you too well.  You are surely too wise to believe that.

      •  The election of con men to legislatures around (1+ / 0-)
        Recommended by:
        cynndara

        the country has certainly had the effect of imposing restrictions on individual behaviors universally, instead of on just designated segments of society. It's as if someone decided, "if they want to be equal, let them be equally deprived." After all, the civil and consumer rights revolutions wouldn't have happened, if segregated populations had continued to be sufficient to keep everyone in their place.
        I expect that's the real lesson of Germany -- making an example of target populations to intimidate the whole reaches a tipping point, where "there but for the grace of God, go I" turns into "I'm next" and the majority revolts.
        The traditional ruling elites in the U.S. are in push-back mode. Inspecting the female uteri is not going to bring back the frenzied reproduction of the fifties. Excluding foreign-born workers is not going to promote the home-grown. The Cons can construct all the antagonistic binaries they want, but they won't necessarily translate into real life. The Sesame Street generation is not seduced or entranced by cars for the simple reason that they didn't grow up associating cages on wheels with escape and sexual gratification.
        The genie cannot be put back in the bottle, but that doesn't mean people aren't going to try. Fact is that all the people currently hung up on social control are going to die. That's a good thing. The rule of law has been designed to circumvent the truth that all people die. That's a bad thing. However, the notion that the law is immortal is a lie. It is true that the law can be used to intimidate and subordinate, but not only can the law be changed, people don't have to comply.

        We organize governments to deliver services and prevent abuse.

        by hannah on Thu Jun 13, 2013 at 03:22:59 AM PDT

        [ Parent ]

  •  This is why we need death penalties for CEOs. Like (0+ / 0-)

    they have in China.

  •  Why are we only waking up now? (0+ / 0-)

    The corporations have been pulling this crap for the last thirty years.  Bankruptcy has become a deliberate gambit for shedding responsibility.  Not too surprising, since the entire corporate structure is a deliberate gambit for evading responsibility, but still.  In the fifties and sixties, our laws demanded that profits take a back seat to obligations.  No more.

    This is going to go on until we put a stop to it.  Possibly by rethinking the entire concept of limited liability corporations.  For the majority of human history and societies, such enterprises would have been flatly illegal PRECISELY because they allow the participants to profit without the obligation to make good on promises owed.  Perhaps we'll have to move to something resembling the medieval Jewish and Islamic systems, where since the government doesn't enforce obligations, business is only done among people with strong personal ties.  That effectively limits the size of an enterprise to something much more human in scale, unless you just happen to have a successful business AND five healthy, intelligent sons, like the first Rothschild.

    I don't know.  Except I do know that in the long run, that which unsustainable will not be sustained.  Corporations are "shedding" promises made back when the Law enforced contracts made with laborers; now that it doesn't, no worker is fool enough to forego current pay for a future promise.  Fool me once, shame on you.  Fool me twice, shame on me.  There aren't a lot of pension funds left to loot, and when they're gone, so is one major current source of profits.

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