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Pension Plans Retired by Section 1114

By: Courtney Sokol

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

 

        The United States District Court for the Northern District of Alabama concluded that the Bankruptcy Court had jurisdiction and entered a valid termination of retirement benefits pursuant to Section 1114 of the Bankruptcy Code.  Moreover, according to the District Court, it lacked jurisdiction to consider the Appellants' challenge to the Bankruptcy Court's ruling under Section 1113.[1]  This ruling allows Walter Energy to terminate collective bargaining agreements with retired coal miners, thus allowing the “necessary” reorganization of the debtor.  This suit was an effort by the United Mine Workers of America to preserve the retirement plans of covered employees of Walter Energy, a company seeking a protection under Chapter 11 of the Bankruptcy Code.[2]  If retiree benefits were not halted the proposed purchaser, Warrior Met Coal, LLC, would not acquire Walter Energy.[3]   

        The question on appeal focused on whether a debtor could use Bankruptcy Code provisions to dismiss obligations to retirees which were mandated under the Coal Act.[4]  The Coal Act applies to debtors and operates as a safeguard for retirees to maintain health benefits in the event of debtor reorganization.[5]  Section 1114 was adopted as part of the Retiree Benefits Bankruptcy Protection Act of 1988 and provides that a Chapter 11 trustee or a “debtor in possession is required to continue to pay retiree benefits throughout reorganization….”[6]

        The applicability of Section 1114 was reduced to a question of statutory interpretation.[7]  Under section 1114, a retirement plan need be “maintained or established in whole or in part by debtors”; it does not require that the plan, fund, or program be established by and maintained by debtors.[8]  The court reasoned that Congress's decision to use the disjunctive “or” is imperative to the conclusion that debtors must either establish or maintain the funds under the Coal Act.[9]

        Because the debtors maintained the Coal Act Plans in part by funding them, the plans are retirement benefits subject to Section 1114.[10]  Accordingly, the court concluded that Section 1114 allows the modification and termination of Coal Act retiree benefits.[11]

        This decision is consistent with a Third Circuit ruling which held that the corporation owning the Trump Taj Mahal may reject an expired collective bargaining agreement in order to restructure.[12]  The Third Circuit, like the court here, gave wide latitude to the debtors so that they could preserve jobs and the vitality of the business.[13]  The Supreme Court denied certiorari to the Third Circuit case, but perhaps this recent Northern District of Alabama decision will grab the attention of the Justices.  

        Interpretation of Section 1114 is ripe for review due to splits in various courts.  Though this issue was denied review by the highest court, perhaps going forward the Supreme Court will entertain the issue and present a definitive answer to the questions contemplated in United Mine Workers of America v. Walter Energy.

 



[1] United Mine Workers of Am. 1974 Pension Plan & Trust v. Walter Energy, Inc., No. 2:16-CV-00057-RDP, 2016 WL 2894091, at *14 (N.D. Ala. May 18, 2016).

[2] Id. at *3. 

[3] Id. at *1.

[4] Id.

[5] Id. at *2.

[6] Id. at *3.

[7] Id. at *8.

[8] Id.

[9] Id.

[10] Id.

[11] Id. at *13.

[12] In re Trump Entm't Resorts, 810 F.3d 161, 173 (3d Cir.), cert. denied sub nom. Unite Here     Local 54 v. Trump Entm't Resorts, Inc., 136 S. Ct. 2396 (2016).

[13] Id.  at 174.