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The UMWA's Motion to Transfer Venue in the Patriot Coal Case

Sep 13, 2012

Publication Source: Labor Press

The United States Bankruptcy Court for the Southern District of New York is one of the most popular places for large businesses to file for bankruptcy. Large bankruptcy cases filed in the Southern District in recent years include General Motors, Chrysler, American Airlines, Hostess Brands, and Delta Air Lines. These cases involve the restructuring of billions of dollars of debt and other liabilities and often directly affect thousands of current and former employees, as well as vendors, suppliers and customers.

The proliferation of bankruptcies in the Southern District means that the professional industry necessary to support and service a large debtor, including lawyers, financial advisors, and noticing agents, is well-developed. In addition, the judges are highly experienced in commercial bankruptcies and regularly face complex and novel issues of law. That the Southern District is convenient for professionals, has an established bankruptcy infrastructure, and an expert judiciary, leads even more companies to file for bankruptcy protection there. While the Southern District is an appropriate venue for most of the bankruptcies filed in the Southern District, certain of the cases are more appropriately situated in other districts.

Recently, the Patriot Coal Corporation and its subsidiaries (“Patriot Coal”) filed for bankruptcy protection in the Southern District. While Patriot Coal asserts that it has many connections to New York, which makes the venue appropriate, the filing in the Southern District means any participation by the thousands of employees and retirees of Patriot Coal, most of whom are located in West Virginia, will be difficult and burdensome. On July 19, 2012 the United Mine Workers of America (“UMWA”) filed a motion to transfer venue of Patriot Coal’s bankruptcy cases from New York to West Virginia. The UMWA did this in order to allow the 2,000 UMWA member Patriot Coal employees, and the 10,000 additional Patriot Coal retirees, to be more involved in Patriot Coal’s cases. If a venue change is approved, it will be a benefit for Patriot Coal employees and retirees located in West Virginia who will then not have to travel long distances to be actively involved in the cases. The outcome of the UMWA’s motion is important, not only for UMWA members who are employees of Patriot Coal, but also for workers everywhere whose employers could potentially, or already have, filed for bankruptcy protection in a distant area of the country, making meaningful labor participation all but impossible.

Patriot Coal’s Business

Patriot Coal is a leading producer and marketer of coal in the United States. Patriot Coal’s operations and coal reserves are in the Appalachia and Illinois Basin coal regions, and it is one of the five leading producers of coal in those regions. In the twelve months ending March 31, 2012, Patriot Coal mined and prepared approximately 29.4 million tons of coal for sale, domestically and internationally, to industrial users, steel mills, independent coke producers, and electricity generators.

Although Patriot Coal is a leading producer of coal in the Untied States, it has been struggling in recent years. Specifically, while Patriot Coal reported $2.33 billion in revenues for the twelve months ending March 31, 2012, its Adjusted EBITDA was $164 million and Patriot Coal’s net loss during the same period was $198.5 million. This is because Patriot Coal has been facing a very competitive environment, a reduced demand for coal, an increasingly burdensome regulatory environment, and, significant labor-related legacy liabilities.

Patriot Coal provides benefits and/or employment to tens of thousands of people. Specifically, Patriot Coal employs over 4,000 people in active status, in full- and part-time positions, and roughly 645 people in inactive status. Approximately 2,000 of Patriot Coal’s 4,000 active employees are unionized and are represented by the UMWA under collective bargaining agreements. In addition, Patriot Coal provides healthcare and other benefits to 10,286 primary insureds and 12,145 beneficiaries, amounting to a total of 22,431 individuals.

Patriot Coal’s Bankruptcy Filing in New York

On July 9, 2012, Patriot Coal voluntarily filed its bankruptcy petitions in the Bankruptcy Court for the Southern District of New York. Patriot Coal filed for bankruptcy in order to restructure its costs, in particular its labor and regulatory costs.

Patriot Coal asserted that the Southern District of New York was the appropriate venue for the bankruptcy filing because two of its affiliates are organized under the laws of the State of New York. In addition, Patriot Coal stated that the principal assets of those two affiliates, along with those of the parent corporation, Patriot Coal Corporation, are located in New York. Further, Patriot Coal stated that its legal and financial advisors, and significant creditors, and their advisors, are in New York.

The UMWA’s Motion to Transfer Venue to West Virginia

On July 19, 2012, the UMWA moved to transfer all 99 Patriot Coal cases to the Bankruptcy Court for the Southern District of West Virginia. Pursuant to the Federal Rules of Bankruptcy Procedure, the Court may transfer Patriot Coal’s cases where “it determines that the transfer is in the interests of justice or for the convenience of the parties.” Therefore, if the UMWA shows that the transfer is in the interests of justice, which means that transferring the cases would make for a more efficient use of the court’s and Patriot Coal’s resources, or if the UMWA shows that the new venue would be closer to creditors, the debtor, necessary witnesses, and assets, the UMWA should prevail on its motion to transfer venue.

In its motion, the UMWA’s allegations included the following relevant facts:

1. only two of the 99 Patriot Coal entities are domiciled in New York, and both of those entities were created in June 2012;

2. 54 of the 99 Patriot Coal entities have residences in West Virginia;

3. Patriot Coal operates 12 mines; 8 of these are in West Virginia;

4. none of Patriot Coal’s fifty largest unsecured creditors are located in New York, while 20% of the fifty largest unsecured creditors are located in West Virginia;

5. most of the UMWA’s Patriot Coal members live in West Virginia;

6. many of the retirees who receive benefits from Patriot Coal live in West Virginia; and

7. coal mining is a significant industry in West Virginia, but is practically nonexistent in New York.

Together, the UMWA argued that these seven facts, in addition to others, make West Virginia a more convenient and just location for the case to be situated.

In late July and throughout August, 2012, other parties joined into the UMWA’s motion to transfer venue. These parties included the West Virginia Attorney General; utility companies including, American Electric Power and Monongahela Power Company; and various insurance companies.

In addition, on August 22, 2012, the United States Trustee, which is an arm of the United States Department of Justice, filed its own motion to transfer venue. The US Trustee’s motion is based upon the “interests of justice” prong of the Federal Rules of Bankruptcy Procedure’s venue transfer test. Specifically, the US Trustee’s motion indicated that the US Trustee believes that Patriot Coal engaged in unreasonable and inappropriate forum shopping when it filed its cases in New York. On August 27, 2012, the UMWA Health & Retirement Funds filed its joinder in support of the US Trustee’s motion.

On August 27, 2012, Patriot Coal opposed the motions filed by the UMWA and the US Trustee and reaffirmed its position that the Southern District of New York is the appropriate venue for its bankruptcy cases. On that same date, the Official Committee of Unsecured Creditors also objected to the UMWA’s motion and stated that the UMWA had not established that West Virginia would be more economical or convenient for all creditors than New York.

The Court’s Decision is Pending and Could have a Broad Impact

At this time, the UMWA’s motion is pending, and a hearing is set for September 11, 2012. UMWA members and other interested persons should be on the lookout for a decision on this matter in mid- to late-September.

The outcome of these motions matters to not only to UMWA employees and retirees, but to all laborers. This is because the Patriot Coal decision will probably be used for legal precedent in other future venue battles. Therefore, depending on how the Court rules in this case, its decision can have a positive or negative impact on the future efforts of laborers to be actively involved in their employers’ bankruptcies and to transfer venue when their employers file for bankruptcy protections in distant and hard to reach venues.