IN THE UNITED STATES BANKRUPTCY COURT 

FOR THE EASTERN DISTRICT OF VIRGINIA 

Richmond Division 

IN RE: ALPHA NATURAL RESOURCES, Case No. 15-33896-KRH 

INC., et al., Chapter 11 

 (Jointly Administered) 

 Debtors. 

MEMORANDUM OPINION 

On August 3, 2015 (the “Petition Date”), Alpha Natural Resources, Inc., and 1491

 of its 

direct and indirect subsidiaries (the “Debtors”) commenced these bankruptcy cases by each filing 

a separate voluntary petition for relief under chapter 11 of the Bankruptcy Code in the United 

States Bankruptcy Court for the Eastern District of Virginia.2

 The Debtors continue to manage 

their properties and operate their businesses as debtors in possession (“DIP”) pursuant to §§ 1107 

and 1108 of the Bankruptcy Code. No trustee or examiner has been appointed in these chapter 

11 cases. On August 5, 2015, the Court entered an order authorizing the joint administration of 

these chapter 11 cases.3

 On August 12, 2015, the United States Trustee for the Eastern District 

of Virginia appointed the statutory committee of unsecured creditors (the “Committee”).4

This matter comes before the Court on the motion (the “Rejection Motion”) of the 

Debtors for entry of an order authorizing the Debtors to i) reject certain collective bargaining 

agreements with the United Mine Workers of America (the “UMWA” or “Union”) under § 1113 

 

1

 The Chapter 11 petition for one of the Debtors’ subsidiaries, Grey Hawk, has since been withdrawn. Order 

Dismissing Case, In re Alpha Nat. Res., Inc., No. 15-33896 (Bankr. E.D. Va. Oct. 8, 2015) ECF No. 638. 

2

 All further references to the Bankruptcy Code are to the Bankruptcy Code as codified at 11 U.S.C. §§ 101 et seq. 

3 See Fed. R. Bankr. P. 1015. 

4

 Section 1103 of the Bankruptcy Code sets forth the powers and duties of a committee under Chapter 11 of the 

Bankruptcy Code. 

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of the Bankruptcy Code and ii) modify certain retiree benefits under § 1114 including the 

elimination of the Debtors’ liabilities under the Coal Industry Retiree Health Benefit Act of 1992 

(the “Coal Act”).5

 

The UMWA filed an objection to the Rejection Motion on the principal basis that 

§§ 1113 and 1114 do not apply to the Debtors as a matter of law and on alternative grounds that 

even if §§ 1113 and 1114 do apply, the Debtors have not satisfied the statutory requirements 

entitling them to relief (the “UMWA Objection”). Two healthcare funds created by the Coal Act 

(the “Coal Act Funds”) and four other UMWA pension and healthcare funds (the “UMWA 

Funds”) also filed objections to the Rejection Motion on a number of grounds (the “Funds 

Objection,” and together with the UMWA Objection, the “Objections” or “Objectors”).6

 The 

UMWA Funds joined the UMWA Objection in its entirety. In addition, the Coal Act Funds 

advanced a separate Objection arguing that § 1114 did not apply to the Coal Act Funds, and that 

even if § 1114 did apply, the Debtors had not met the procedural and substantive requirements of 

§ 1114 of the Bankruptcy Code. On May 9, 2016 (the “Hearing Date”), the Court conducted an 

evidentiary hearing to consider the Debtors’ Rejection Motion (the “Hearing”). At the 

conclusion of the Hearing, the Court announced that it would overrule the Objections and 

approve the Rejection Motion. The Court has entered separately an order authorizing the 

termination of the collective bargaining agreements and approving the modification of certain 

retiree benefits (the “Rejection Order”). This Memorandum Opinion sets forth the Courts’ 

 

5

 Coal Industry Retiree Health Benefit Act of 1992, Pub. L. No. 102-486, § 19142, 106 Stat. 27776, 3036-56 (1992) 

(codified at 26 U.S.C. §§ 9701-9722). 

6

 This is a contested matter under Federal Rule of Bankruptcy Procedure 9014. 

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findings of fact and conclusions of law supporting the Rejection Order in accordance with Rule 

7052 of the Federal Rules of Bankruptcy Procedure.7

Jurisdiction and Venue

The Court has subject matter jurisdiction over this contested matter pursuant to 28 U.S.C. 

§§ 157 and 1334 and the General Order of Reference from the United States District Court for 

the Eastern District of Virginia dated August 15, 1984. This is a core proceeding under 28 

U.S.C. § 157(b)(2)(A). Venue is appropriate in this Court pursuant to 28 U.S.C. § 1408. 

Factual Background 

The Debtors, headquartered in Bristol, Virginia, are the largest domestic producers of 

coal by volume in the United States. The Debtors sell both metallurgic coal and steam coal to 

international and domestic consumers. At their height, the Debtors operated 145 mines and 

employed 14,500 individuals, generating $7 billion in revenue annually. 

Beginning in 2010, the coal industry began to experience serious market challenges that 

ultimately affected every major operator in the coal industry. Both the price of and the demand 

for coal began to fall. That trend has continued to this day. Between 2011 and 2015, the price of 

metallurgic coal fell 72%. During the same period, the price of steam coal fell 44%. Factors 

leading to the decline of coal prices are lengthy. The genesis of the problem is simple: too much 

supply and too little demand. 

 

7

 Federal Rule of Bankruptcy Procedure 7052 is made applicable to this contested matter by Federal Rule of 

Bankruptcy Procedure 9014. See Fed. R. Bankr. P. 9014. Findings of fact shall be construed as conclusions of law 

and conclusions of law shall be construed as findings of fact when appropriate. See Fed. R. Bankr. P. 7052. 

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In response to these industry-wide macroeconomic headwinds, the Debtors strove to 

reduce expenses and balance cash flow. Capital and administrative expenditures were reduced 

by over 50%. Total external spending fell dramatically. The Debtors’ non-unionized employees 

and retirees were the first to fall victim to the Debtors’ struggle to stay ahead of the downward 

trend. From 2013 to the Petition Date, the Debtors froze wages, laid off employees and slashed 

benefits for their non-union employees. These measures resulted in amortized savings of $173 

million. As of the Petition Date, the Debtors had laid off approximately 46% of their non-union 

employees, and 32% of their union employees. By the time the Debtors filed for protection 

under Chapter 11 of the Bankruptcy Code, the Debtors had closed more than eighty mines. Total 

employment count had fallen from 14,500 to less than 8,000. 

Following the Petition Date, the price of coal continued to fall. The Debtors worked to 

decrease expenditures. By February 29, 2016, the Debtors had laid off an additional 1,419 nonunion employees and an additional 248 union employees. Beginning on January 1, 2016, nonunion employees suffered another round of benefit cuts that saw their health and wellness 

benefits reduced below pre-petition levels. The Debtors continue to struggle to outrun the 

precipitous decline in coal prices. During the first two months of 2016, the Debtors incurred a 

net book loss of $126 million. The Debtors’ present cash burn amounts to $10 million each 

week. The Debtors have sustained over $300 million in losses since the Petition Date. While 

many of the Debtors’ non-union employees have suffered through these difficult times, the 

Debtors’ unionized workers have largely avoided this fate due to their collective bargaining 

agreements. 

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The Debtors’ Labor & Retiree Obligations 

The Debtors currently employ approximately 610 active employees who are represented 

by the UMWA (the “Active Union Employees”). These 610 Active Union Employees are 

covered by a number of collective bargaining agreements. These collective bargaining 

agreements also provide benefits to approximately 2,600 retired union employees (the “Retired 

Union Employees,” together with the Active Union Employees, the “Union Employees”). The 

collective bargaining agreements generally provide certain protections and benefits in favor of 

the collective body of workers covered thereunder. The terms and conditions of each collective 

bargaining agreement vary, but in many instances, the collective bargaining agreements result in 

higher labor costs for the Debtors compared to non-union workers. For example, the collective 

bargaining agreements restrict the Debtors’ ability to utilize subcontractors and to modify work 

schedules. The Debtors’ average labor cost for an Active Union Employee is $92,442 as 

compared to $69,068 for a non-union employee. 

The collective bargaining agreements require the Debtors to make payments to the four 

different UMWA Funds for the benefit of the Retired Union Employees. First, the Debtors are 

required to make payments to the UMWA 1974 Pension Plan (the “1974 Pension Plan”). The 

1974 Pension Plan is a multiemployer pension plan that was initially established by the National 

Bituminous Coal Wage Agreement (“NBCWA”) of 1974. It provides pension benefits to 89,000 

beneficiaries and their surviving spouses. The Debtors project the 2016 annual cost for their 

contributions to the 1974 Pension Plan to be approximately $9.6 million. Second, the Debtors 

are required to make payments to the UMWA 1993 Pension Plan (the “1993 Pension Plan”). 

The 1993 Pension Plan is a multiemployer welfare benefit plan that provides benefits to certain 

retirees whose previous employer is no longer operating and who are not otherwise covered by 

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the Coal Act. The Debtors project the 2016 annual cost for their contributions to the 1993 

Pension Plan to be approximately $1.5 million. Third, the Debtors are required to make 

payments to the UMWA 2012 Retiree Account Plan (the “2012 Account Plan”). The 2012 

Account Plan is a multiemployer plan that provides yearly one-time lump sum payments to 

eligible retirees. The Debtors expect to pay approximately $2.3 million to the 2012 Account 

Plan in 2016. Finally, the Debtors are required to make payments to the UMWA Cash Deferred 

Savings Plan of 1988 (the “1988 Plan”). The 1988 Plan requires the Debtors to contribute sums 

to a 401(k) plan based on hours worked for eligible employees. The Debtors expect to contribute 

approximately $36,000 to the 1988 Plan in 2016. 

In addition to these four UMWA Funds, the Debtors are required to contribute to the two 

Coal Act Funds and adhere to other provision of the Coal Act.8

 The Coal Act requires the 

Debtors to maintain and fund their individual employer plans (“IEP”) that were in effect pursuant 

to wage agreements to which they previously agreed.9

 See 26 U.S.C. § 9711. Pursuant to 26 

U.S.C. § 9711, the Debtors continue to provide IEPs for the benefit of 1,070 retired coal miners 

at an expected cost of $7.1 million in 2016. The two healthcare funds established by the federal 

Coal Act are the Combined Benefit Fund (the “Combined Fund”)10, and the UMWA 1992 Plan 

(the “1992 Plan”). The Debtors expect to pay a premium in the approximate amount of $334,000 

to the Combined Fund in 2016. The 1992 Plan provides benefits to eligible retirees who were 

 

8

 The Coal Act was enacted in 1992 to ensure the adequacy of retiree benefits for retired coal miners. “The 

overarching purpose of the [Coal] Act was to establish a system whereby each current and former signatory operator 

. . . is required to pay for the benefits provided to its own retirees and to share in the cost of providing benefits to 

orphaned retirees.” In re Leckie Smokeless Coal Co., 99 F.3d 573, 576 (4th Cir. 1996) (citing LTV Corp. v. Shalala 

(In re Chateaugay Corp.), 53 F.3d 478, 485 (2d Cir. 1995)). 

9

 Prior to the Coal Act, the Debtors had entered into a series of National Bituminous Coal Wage Agreements 

(“NBCWAs”). The NBCWAs required that the signatory operators fund and maintain IEPs for their own retirees as 

well as to contribute to different UMWA pension funds. See District 29, United Mine Workers of Am. v. United 

Mine Workers of Am. 1992 Benefit Plan, 179 F.3d 141 (4th Cir. 1999). 

10 The Combined Fund consolidated the 1950 UMWA Benefit Plan, and the 1974 UMWA Benefit Plan. 

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not covered by the Combined Fund at the time of the enactment of the Coal Act and also 

provides benefits to “orphan” retirees whose previous employers could no longer provide them 

with an IEP. See 26 U.S.C. § 9712(b). In 2016, the Debtors expect to pay approximately $1.2 

million to the 1992 Plan. 

 

The Chapter 11 Case 

 The Debtors’ Chapter 11 case began with the goal of exiting bankruptcy through a classic 

reorganization that would allow the Debtors to maintain substantially all of their assets while 

restructuring and modifying their obligations. On the Petition Date, the Debtors filed a motion 

requesting approval of a post-petition secured financing facility in the amount of $692 million 

(the “DIP Financing Agreement”). 11 The DIP Financing Agreement was arranged by a 

combination of the Debtors’ first and second lien lenders (the “DIP Lenders”). It established a 

number of case milestones that the Debtors were required to timely achieve. It set a deadline by 

which the Debtors had to file a Chapter 11 plan of reorganization. The DIP Financing 

Agreement required the Debtors to reach a consensual agreement for the modification of their 

collective bargaining agreements and retiree benefit obligations or to obtain an order from this 

Court authoring the rejection of those agreements. 

 On September 17, 2015, the Court approved the DIP Financing Agreement on a final 

basis (the “DIP Order”). On November 19, 2015, the Court approved amendments three and 

four to the DIP Financing Agreement. These amendments called for the Debtors to enter into a 

 

11 The DIP Financing Agreement contained three facilities: (i) a $200 million revolving credit facility; (ii) a $300 

million term loan facility; and (iii) a $192 letter of credit facility. 

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non-binding, plan structure agreement with the DIP Lenders (the “PSA”) that would outline 

several different restructuring scenarios and create a road map for the remainder of the case. 

The direction of the case switched course on February 8, 2016, when the Debtors filed a 

motion with the Court seeking authorization for a going-concern sale of substantially all of the 

Debtors’ core, revenue generating assets (the “Core Assets”) under § 363 of the Bankruptcy 

Code. Included among the Core Assets were substantially all of the Debtors’ coal mining related 

complexes throughout the United States. The Debtors’ pre-petition lenders agreed to serve as a 

stalking horse for the sale of the Debtors’ Core Assets (the “Stalking Horse Bidder”).12 The prepetition lenders initially agreed to credit bid $500 million for the Debtors’ Core Assets (the 

“Stalking Horse Bid”).13 The Debtors proposed to sell their Core Assets as a going concern, free 

and clear of liens, claims, and encumbrances as detailed in the asset purchase agreement 

executed by the Debtors and the Stalking Horse Bidder (the “APA”). 

The Stalking Horse Bidder has refused to assume any of the Debtors’ liabilities and 

obligations under the Coal Act or to the UMWA Funds. The Stalking Horse Bidder will not 

close the sale unless it can receive the Core Assets free and clear of the Debtors’ obligations 

under their collective bargaining agreements. The collective bargaining agreements that are 

subject to the Rejection Motion each contain a successorship clause that would bind a subsequent 

purchaser of the Debtors’ business operations. The successorship provisions need to be either 

 

12 A stalking horse is typically used in an auction to set the floor price for a group of assets and instill confidence in 

other bidders that the assets are worth at least what the stalking horse bidder is willing to pay. “Stalking horse bids 

may generate interest in the assets and create a sense of confidence in the value of the assets among prospective 

buyers who might assume that a willing buyer has conducted due diligence.” See Reagan v. Wetzel, 403 B.R. 614, 

618 n.3 (8th Cir. B.A.P. 2009). 

13 This credit bid was later reduced to $325 million after the Debtors received a separate stalking horse bid for their 

natural gas related assets held by one of the subsidiary Debtors. 

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waived by the UMWA or rejected by the Debtors in order to consummate a sale to the Stalking 

Horse Bidder.14 

Sections 2.02 and 2.04 of the APA provide that the Stalking Horse Bidder shall not be 

required to assume or perform any obligations related to collective bargaining agreements, 

multiemployer pension plans, or the Coal Act. The APA also requires as a condition of closing 

that there be “[e]ntry of an Order, in form and substance reasonably acceptable to the Required 

Lenders and Buyer, by the Bankruptcy Court confirming a plan of reorganization in the 

Bankruptcy Case.” 

Along with the sale motion, the Debtors asked the Court on February 8, 2016, for 

approval of amendment number five to the DIP Financing Agreement (“Amendment No. 5”). 

Amendment No. 5 eliminated a potential default under the DIP Financing Agreement by 

substituting the new case milestones set forth in the PSA for those contained in the DIP 

Financing Order and the DIP Financing Agreement. It also established specific deadlines by 

which the Debtors were required to obtain relief or a settlement with respect to the Debtors 

collective bargaining agreements and retiree obligations. On March 11, 2016, the Court 

approved Amendment No. 5 without objection as a reasonable exercise of the Debtors’ business 

judgment. The Debtors are now required to obtain confirmation of a Chapter 11 plan of 

 

14 Article 10(i) of the APA expressly states that a sale of the Core Assets to the Stalking Horse Bidder will not occur 

unless: 

The Bankruptcy Court determines that the Sellers can sell the Purchased Assets free and clear of 

the successor clause in each of the collective bargaining agreement set forth in Schedule 9.01(a) 

(the “Collective Bargaining Agreements”), Sellers obtain the applicable labor union’s consent to 

waive/remove the successor clause in each of the Collective Bargaining Agreements or the 

Bankruptcy Court grants the motion (the “Section 1113(c) Motion”) filed by the applicable Sellers 

pursuant to 1113(c) of the Bankruptcy Code authorizing such Sellers to reject each of the 

Collective Bargaining Agreements. 

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reorganization by June 30, 2016. Failure to meet any of the new milestones established by 

Amendment No. 5 constitutes an event of default under the DIP Financing Agreement. 

The Rejection Motion 

On March 28, 2016, the Debtors filed their Rejection Motion requesting the Court to 

grant permission: (i) to reject the collective bargaining agreements and the obligations included 

therewith by and between the Debtors and the UMWA pursuant to § 1113(c) of the Bankruptcy 

Code; (ii) to modify the Debtors’ retiree benefit obligations to the UMWA Funds and under the 

Debtors’ collective bargaining agreements pursuant to § 1114(g) of the Bankruptcy Code; and 

(iii) to modify the Debtors’ retiree benefit obligations under the Coal Act, including payments to 

the Coal Act Funds pursuant § 1114(g) of the Bankruptcy Code. 

 The UMWA Objection was filed in opposition to the Rejection Motion on a number of 

grounds. As an initial matter, the UMWA argues that §§ 1113 and 1114 are not available to the 

Debtors because they are liquidating and not reorganizing. The UMWA argues in the alternative 

that the relief the Debtors request is not truly necessary, and the Debtors have not satisfied the 

required elements of §§ 1113 and 1114 of the Bankruptcy Code. 

 The Funds Objection was filed on behalf of two distinct groups of funds. The first group 

was the UMWA Funds – the 1974 Pension Plan, 1993 Pension Plan, 2012 Account Plan, and the 

1988 Plan. These four funds arise out of the Debtors’ collective bargaining agreements and are 

situated in a procedural posture similar to that of the UMWA. Accordingly, the UMWA Funds 

joined the UMWA Objection in its entirety. The Funds Objection focused, therefore, on the 

rights of the second group – the Coal Act Funds.15 The Coal Act Funds advanced three principal 

 

15 Coal Act Funds are comprised of the 1992 Plan and the Combined Fund. 

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arguments in support of their objection. First, the Coal Act Funds argued that § 1114 was never 

meant to apply to retiree obligations that are born out of a federal statute (the Coal Act) and that 

§ 1114 only applies to collectively bargained retiree obligations. Second, the Coal Act Funds 

submit that the Debtors have not met the procedural requirements under § 1114 because the 

Debtors have not submitted a proposal to an “authorized representative” of the Coal Act Funds. 

Finally, the Coal Act Funds marshal the same arguments as the UMWA by arguing that even if 

the procedural requirements of § 1114 are met, the Debtors have failed to carry their burden in 

regard to the substantive requirements of § 1114. 

UMWA Negotiations 

 Leading up to and following the filing of the Rejection Motion, the Debtors and the 

UMWA attempted to negotiate modifications to the collective bargaining agreements that would 

prevent an outright rejection of the agreements by the Debtors. The Debtors and the UMWA 

met in person and over the telephone on a number of occasions from December 2015 through 

March 2016. Both sides exchanged proposals and information. As the Hearing Date 

approached, the UMWA initiated negotiations directly with the Stalking Horse Bidder. These 

discussions proved to be encouraging. 

 The first meeting occurred on December 8, 2015. The Debtors advised the UMWA that 

they needed to achieve $200 million in savings annually in order to complete a restructuring. 

The Debtors projected that approximately $60 million of this cost saving would need to come 

from labor expense reductions. The Debtors created a data room with 22,000 pages of 

information relating to financial performance, wages, retiree benefits, cost saving measures, and 

operational information. 

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 On January 4, 2016, the Debtors advanced their initial proposal to the UMWA (the 

“January 4 Proposal”). The January 4 Proposal called for a number of wage and efficiency 

modifications affecting the Active Union Employees that the Debtors hoped would save over 

$18.7 million annually. The January 4 Proposal also provided for the Debtors cessation of 

further payments to the UMWA Funds and the Coal Act Funds. Under the January 4 Proposal 

the Debtors would terminate their IEPs under the Coal Act. The Debtors expected these actions 

would contribute approximately $44 million in additional annual cost savings. The Debtors 

stressed in the January 4 Proposal that labor negotiations were the Debtors’ top priority. 

The Debtors met with the UMWA on January 11 and 12. The UMWA rejected most of 

the provisions in the January 4 Proposal and did not provide a counterproposal to the Debtors at 

that time. The Debtors focused on complying with requests for additional data made by the 

UMWA. The parties met numerous times in person and over telephone conference through 

February and March. 

On March 9, 2016, the UMWA made a counter proposal to the Debtors (the “UMWA 

Counter Proposal”). The UMWA Counter Proposal generally rejected most of what the Debtors 

had proposed. A key sticking point was the insistence of the UMWA that any agreement 

reached with the Debtors be binding upon a subsequent purchaser of the Debtors’ assets. On 

March 18, 2016, the Debtors dismissed most of the UMWA Counter Proposal as unrealistic. The 

Debtors maintained that the UMWA Counter Proposal would be ineffective in achieving the 

required cost savings. The Debtors estimated that the UMWA Counter Proposal would yield 

only $2 million in annual savings. The UMWA Counter Proposal left unaddressed the Debtors’ 

specific proposals regarding the UMWA Funds and other issues pertaining to wages, overtime, 

holidays, and vacation time. The Debtors advised the UMWA that the Debtors could not agree 

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to bind any subsequent purchaser to the terms of any deal the Debtors and the UMWA might 

reach. The Stalking Horse Bidder was unwilling to assume the collective bargaining agreements 

in their current form. The Debtors and the UMWA conferred at least ten times between March 9 

and the Hearing Date. The Debtors provided over 39,000 pages of information in their data 

room that the UMWA requested. The Court finds that this information was complete, reliable, 

and furnished in a timely manner. 

On May 3, 2016, the Debtors responded to the UMWA Counter Proposal with a revised 

proposal – the UMWA rejected this proposal on the same day. Throughout the negotiation 

process, the UMWA reiterated that it had no legal authority to negotiate on behalf of the Coal 

Act Funds because the Coal Act Funds were creatures of federal law. The UMWA also stated 

that it did not represent the retirees receiving benefits through the Coal Act Funds. 

Analysis 

 Section 1113 of the Bankruptcy Code allows a Debtor to reject a collective bargaining 

agreement if a number of procedural and substantive requirements are met. See 11 U.S.C. 

§ 1113. A debtor must present a proposal to an “authorized representative” of the employees, 

provide complete and reliable information and ultimately prove that the modifications to the 

existing agreements “are necessary to permit the reorganization of the debtor” and ensure that 

“all creditors, the debtor and all of the affected parties are treated equally and fairly. Id.

§ 1113(b)(1). The Court must also find that the authorized representative has refused to accept a 

debtor’s proposal without good cause, and that the balance of equities clearly favor rejection. Id.

§ 1113(c). The courts have developed a test comprised of nine factors for determining whether a 

debtor has satisfied the substantive requirements of § 1113 of the Bankruptcy Code. In re 

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American Provision Co., 44 B.R. 907, 909 (Bankr. D. Minn. 1983); see In re Lady H Coal Co., 

193 B.R. 233, 241 (Bankr. S.D.W. Va. 1996) (applying the nine-part test). The burden of proof 

differs with respect to each individual element. See American Provision, 44 B.R. at 909-10. 

 Section 1114 of the Bankruptcy Code allows a debtor to modify the “retiree benefits” of 

its former employees if it satisfies the nine-part test established for § 1113 relief. Accordingly, 

the test for rejection under § 1113 is identical to the test for modification under § 1114. See In re 

Horsehead Indus., Inc., 300 B.R. 573, 583 (Bankr. S.D.N.Y. 2003). “The statutory requirements 

for modification of retiree benefits are . . . substantially the same as the requirements for 

rejection of collective bargaining agreements.” In re Walter Energy, Inc., 542 B.R. 859, 878 

(Bankr. N.D. Ala. 2015) (quoting In re Horizon Nat. Res. Co., 316 B.R. 268, 281 (Bankr. E.D. 

Ky. 2004)). 

The Rejection Motion turns on resolving four issues: (i) whether §§ 1113 and 1114 apply 

to this proceeding; (ii) whether the Debtors’ obligations under the Coal Act meet the definition 

of “retiree benefits” in § 1114(a);16 (iii) whether the Debtors negotiated and presented a proposal 

to the “authorized representative” of the Coal Act Funds; and (iv) whether the Debtors otherwise 

meet the substantive requirements of §§ 1113 and 1114 of the Bankruptcy Code to terminate 

their collective bargaining agreements with the UMWA and modify their outstanding retiree 

benefit obligations. 

 

16 The term “retiree benefits” is defined in § 1114(a) of the statute. 

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§§ 1113 and 1114 Apply to the Debtors 

Both Objectors argue that this Court cannot grant relief to the Debtors under §§ 1113 and 

1114 of the Bankruptcy Code because the Debtors are liquidating and §§ 1113 and 1114 are only 

available to a debtor that is involved in a “reorganization.” The Objectors maintain that, because 

§§ 1113 and 1114 use the term “reorganization,” relief is unavailable to any party not involved a 

“reorganization.” See 11 U.S.C. § 1113(b)(1)(A) (requiring a debtor to prove that the rejection 

of a CBA is “necessary to permit the reorganization of the debtor”); 11 U.S.C. § 1114(g) 

(allowing the modification of retiree benefits when “such modification is necessary to permit the 

reorganization of the debtor”). The Objectors claim that the recent Stalking Horse Bid under § 

363 of the Bankruptcy Code has effectively transformed this bankruptcy case from a 

reorganization into a liquidation; thus precluding relief for the Debtors under §§ 1113 and 1114 

of the Bankruptcy Code. The Court need make no finding as to whether the Debtors are 

liquidating or reorganizing.17 The Court will follow the majority of courts that have confronted 

this issue by declining to adopt the narrow reading of the term “reorganization” that the 

Objectors advance. 

The term “reorganization” is not defined in the Bankruptcy Code. Sections 1113 and 

1114 are part of Chapter 11 of the Bankruptcy Code. Chapter 11 expressly provides for plans of 

liquidation. See 11 U.S.C. § 1129(a)(11) (noting a Chapter 11 plan of reorganization may 

provide for liquidation). Black’s Law Dictionary defines reorganization broadly as “[a] financial 

restructuring of a corporation, esp. in the repayment of debts, under a plan created by a trustee 

and approved by a court.” Reorganization, Black’s Law Dictionary (8th Ed. 2004). 

 

17 The Debtors currently propose to preserve their coal mining complexes and their natural gas facilities as two 

separate going concern business operations through a § 363 sales process and to reorganize around their remaining 

assets all subject to confirmation of a plan under § 1129 of the Bankruptcy Code. 

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Courts unanimously hold that relief under § 1113 is available to liquidating debtors in 

Chapter 11. See e.g., United Food & Commercial Workers Union v. Family Snacks Inc. (In re 

Family Snacks, Inc.), 257 B.R. 884, 893 (8th Cir. B.A.P. 2001) (“[C]ourts have applied § 1113 in 

a liquidation scenario.”); In re Hoffman Bros. Packing Co., Inc., 173 B.R. 177, 187-88 (9th Cir. 

B.A.P. 1994) (“§ 1113 does not preclude rejection of collective bargaining agreements where the 

purpose or plan of the debtor is to liquidate by a going concern sale of the business.”). Likewise, 

courts have also granted relief under § 1114 when a debtor proposes to liquidate its assets. See 

e.g., UMWA 1974 Pension Plan & Trust v. Walter Energy (Walter Energy II), No. 16-cv-00057, 

2016 WL 2894091, at *8-10 (N.D. Ala. May 18, 2016); In re SAI Holdings Ltd., No 06-33227, 

2007 WL 927936, at *4 (Bankr. N.D. Ohio Mar. 26, 2007) (“Section 1114 itself does not 

distinguish between a liquidating plan and one in which the debtor seeks to rehabilitate its 

business . . . .”); In re Ionosphere Clubs, Inc., 134 B.R. 515, 524 (Bankr. S.D.N.Y. 1991) 

(applying § 1114 to a liquidating debtor). The Court is not aware of, and the Objectors have 

failed to cite to, any binding authority that supports their interpretation of the statute. 

The Debtors are still in the midst of their Chapter 11 case, and their path forward depends 

on a number of different factors, contingencies, and rulings by this Court. The Court need not 

engage in the difficult task of determining whether the Debtors are liquidating or reorganizing 

because the Court finds that the Debtors are eligible for relief under §§ 1113 and 1114 of the 

Bankruptcy Code. One thing is for sure. No reorganization is possible if the Rejection Motion is 

denied. The Court declines to apply the narrow construction of the term “reorganization” 

advanced by the Objectors, and instead will apply the reasoning of the large number of courts 

that have held that §§ 1113 and 1114 are available to a liquidating debtor. 

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Obligations Under the Coal Act are “Retiree Benefits” 

As the Debtors’ obligations under the Coal Act arise out of federal law, the Coal Act 

Funds advance the argument that the Debtors’ obligations under the Coal Act cannot be modified 

under § 1114 of the Bankruptcy Code. The Coal Act Funds maintain that § 1114 only applies to 

“retiree benefits” under a collective bargaining agreement. Coal Act obligations, they argue, do 

not fall within that definition. Accordingly, the Coal Act Funds conclude, § 1114 of the 

Bankruptcy Code does not apply to obligations under the Coal Act. 

Section 1114(g) of the Bankruptcy Code permits a court to “enter an order providing for 

modification in the payment of retiree benefits.” 11 U.S.C. § 1114(g). Section 1114(a) defines 

the term “retiree benefits” as: 

payments to any entity or person for the purpose of providing or reimbursing 

payments for retired employees and their spouses and dependents, for medical, 

surgical, or hospital care benefits, or benefits in the event of sickness, accident, 

disability, or death under any plan, fund, or program (through the purchase of 

insurance or otherwise) maintained or established in whole or in part by the 

debtor prior to filing a petition commencing a case under this title. 

11 U.S.C. § 1114(a). 

The definition is comprised of three components: (i) benefit payments to retirees; (ii) 

made under any plan, fund, or program; (iii) maintained in whole or in part by a debtor. Id. The 

Coal Act Funds argue that the Debtors’ Coal Act obligations do not meet the third requirement. 

The Coal Act Funds contend that because the Coal Act Funds were created by Congress, they are 

not “maintained or established in whole or in part by the debtor.” 11 U.S.C. § 1114(a). It follows, 

they contend, that Coal Act obligations cannot be modified under § 1114 of the Bankruptcy 

Code. 

 Relatively few Courts have taken up this question of whether Coal Act obligations are 

included in the definition of retiree benefits in § 1114(a) of the Bankruptcy Code. The United 

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States Bankruptcy Court for the Eastern District of Kentucky did analyze the interplay between 

the Coal Act and § 1114(a) and found that obligations under the Coal Act can be modified under 

§ 1114. Horizon, 316 B.R. at 274-78 (“If the modification of the Coal Act retiree benefits is 

necessary . . . and the other requirements of § 1114 are satisfied, modification must be 

permitted.”). The court in Horizon noted that modification of Coal Act obligations was 

permitted because § 1114 clearly allows for the modification of collectively bargained benefits 

or non-collectively bargained benefits. 11 U.S.C. § 1114(b)(1); Horizon, 316 B.R. at 275. The 

court in Horizon relied on a decision from the Court of Appeals for the Fourth Circuit to support 

its decision. See Horizon, 316 B.R. at 279 (citing United Mine Workers of Am. 1992 Benefit 

Plan v. Leckie Smokeless Coal Co. (In re Leckie Smokeless Coal Co.), 99 F.3d 573, 586 (4th Cir. 

1999)). In Leckie Smokeless Coal Co., the Fourth Circuit allowed a debtor to sell certain assets 

free and clear of Coal Act obligations under § 363(f)(5) of the Bankruptcy Code. The Fourth 

Circuit noted the absence of any language to the contrary in the Bankruptcy Code by stating that 

“Congress has given no indication that bankruptcy courts cannot order property sold free and 

clear of interests that Congress has itself created by statute.” Leckie Smokeless Coal, 99 F.3d at 

585-86. The bankruptcy court in Horizon found the Fourth Circuit’s reasoning analogous in the 

context of § 1114 because Congress could have easily removed Coal Act obligations from the 

scope of § 1114 of the Bankruptcy Code. Horizon, 316 B.R. at 279. 

 The United States Bankruptcy Court for the Northern District of Alabama also squarely 

addressed this issue. See Walter Energy, 542 B.R. at 881-84 (holding that Coal Act obligations 

can be modified by § 1114). The court in Walter Energy considered an objection from the 1992 

Plan and the Combined Fund – the same Coal Act Funds objecting to the Rejection Motion at 

bar. Id. at 881. The Court in Walter Energy followed the reasoning in Horizon and determined 

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that the debtors could modify their Coal Act obligations under § 1114 of the Bankruptcy Code. 

Id. at 884. (“[T]he Debtors may use section 1114 to modify Retiree Benefits arising under the 

Coal Act if the other requirements of section 1114 are satisfied.”). 

 On appeal, the district court in Walter Energy rejected the very arguments that the Coal 

Act Funds now raise in this Court. See Walter Energy II, 2016 WL 2894091, at *10-13. The 

district court rejected the Coal Act Funds’ interpretation of the Bankruptcy Code and found that 

“[a]lthough the Coal Act Funds may be established by statute, they are maintained by Debtors.” 

Id. at *10 (citing Horizon, 316 B.R. at 276). The district court went on to hold that because the 

debtors “maintained in part the Coal Act Plans by funding them, the plans are retirements 

benefits subject to Section 1114.” Id. 

 The Court finds the reasoning of the decisions in Horizon, Walter Energy, and Leckie 

Smokeless Coal Co. to be persuasive. A plain reading of § 1114(a) of the Bankruptcy Code 

would appear to encompass obligations under the Coal Act. There is no dispute that the 

obligations in question are benefit payments or that the payments are made to retirees under a 

plan or program. The dispute lies with whether the Coal Act Funds are “maintained or 

established in in whole or in part by the debtor.” The Debtors pay premiums to the Coal Act 

Funds. See 26 U.S.C. § 9712(d) (detailing the payment obligations of each contributor to the 

1992 Plan); 26 U.S.C. § 9704(a) (detailing the payment obligations for each contributor to the 

Combined Fund). It follows that these Coal Act Funds are maintained at least in part by the 

Debtors’ contributions. See Walter Energy II, 2016 WL 2894091, at *10. The Debtors therefore 

meet the standard set forth in § 1114(a). The Coal Act Funds argue that Congress meant to apply 

the definition of retiree benefits only to private obligations. The plain language of § 1114 of the 

Bankruptcy Code does not support such an application. Id. at *11. The statute only requires that 

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the debtor maintain the fund or program “in whole or in part.” 11 U.S.C. § 1114(a). If Congress 

had intended the interpretation of the statute advanced by the Objectors, it would have added the 

word “private” to modify the terms “plan, fund, or program.” But Congress did not do so. As 

explained by the court in Horizon: 

“If Congress wished to exclude Coal Act [benefits] from the reach of [§ 1114] of 

the bankruptcy law, it could have done so by providing exceptions to [the court’s 

authority to modify such obligations] or by limiting the definition of [retiree 

benefits] in the Bankruptcy Code or by providing express language in the Coal 

Act that [obligations] remain unaffected by operation of the Bankruptcy Code.” 

Horizon, 316 B.R. at 279 (quoting Lady H Coal Co. Inc., 199 B.R. 595, 603 (S.D.W. Va. 1996)). 

The Debtors Negotiated with the Authorized Representative of the Coal Act Funds. 

 The Debtors were required to “make a proposal to the authorized representative of the 

retirees” and demonstrate that “the authorized representative of the retirees refused to accept 

such proposal without good cause” in order to obtain authorization to modify retiree benefits 

under § 1114. 11 U.S.C. § 1114(f)(1), (g). The term “authorized representative” is defined in § 

1114(b). The UMWA is the authorized representative of the UMWA Funds and any UMWA 

members receiving retiree benefits pursuant to collective bargaining agreements. The Debtors 

submit that the UMWA is also the authorized representative of the Coal Act Funds. The UMWA 

and the Coal Act Funds take issue with this position. They assert that the Debtors have failed to 

negotiate with any authorized representative of the Coal Act Funds. 

 Section 1114(b) defines the term “authorized representative” differently depending on 

whether the beneficiaries receiving the retirement benefits are covered by a collective bargaining 

agreement. The term “‘authorized representative’ means the authorized representative 

designated pursuant to subsection (c) for persons receiving any retiree benefits covered by a 

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collective bargaining agreement or subsection (d) in the case of persons receiving retiree benefits 

not covered by such an agreement.” 11 U.S.C. § 1114(b). For beneficiaries receiving retirement 

benefits pursuant to any collective bargaining agreement to which a labor organization is 

operating, subsection (c) appoints the labor organization as the authorized representative unless 

the labor organization declines or the court appoints a different representative. 11 U.S.C. 

§ 1114(c).18 If an individual receives retirement benefits but not pursuant to a collective 

bargaining agreement, subsection (d) designates the appointment of a retiree committee “to serve 

as the authorized representative under this section, of those persons receiving any retiree benefits 

not covered by a collective bargaining agreement.” 11 U.S.C. § 1114(d).19

Horizon has been the only case to address this issue. There, the court, without any 

statutory analysis, determined the UMWA to be the authorized representative of the Coal Act 

Funds. See Horizon, 316 B.R. at 273 (“[T]he Union [UMWA], having undertaken to represent 

the Coal Act retirees, constitutes their ‘authorized representative’ within the meaning of 

§ 1114.”). 

 The original starting point for all of the beneficiaries under of the Combined Fund and 

1992 Plan was either a UMWA collectively bargained agreement or another UMWA benefit 

fund. The Coal Act Funds’ argument ignores this reality. The Coal Act Funds have resorted to 

procedural gamesmanship. The retirees under the Coal Act are all UMWA members who were 

 

18 Where the designated union declines to represent the retirees, § 1114(c)(2) authorizes: 

the court, upon a motion by any party in interest, and after notice and a hearing, [to] appoint a 

committee of retired employees if the debtor seeks to modify or not pay the retiree benefits or if 

the court otherwise determines that it is appropriate, from among such persons, to serve as the 

authorized representative of such persons under this section. 

19 On November 11, 2015, the Court ordered the Office of the United States Trustee to appoint a retiree committee 

under § 1114(d) of the Bankruptcy Code (the “Retiree Committee”). The Retiree Committee was appointed to 

represent non-union retirees in response to a motion by the Debtors that asked the Court to allow it to terminate nonpension benefits to its non-union retirees. 

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covered by collective bargaining agreements and were eligible for participation in a UMWA 

pension fund. 

The participants in the Coal Act Funds are all connected to the UMWA. The Combined 

Fund was created by the Coal Act. Its purpose was to combine two existing UMWA trust funds, 

the UMWA 1950 Benefit Trust and the UMWA 1974 Benefit Trust. 11 U.S.C. § 9703(f); see In 

re Chateaugay Corp. 53 F.3d 483-87 (describing the creation of the Combined Fund). 

Accordingly, all the participants in the Combined Fund were members of either the UMWA 

1950 Benefit Trust or the UMWA 1974 Benefit Trust. 

The 1992 Plan covers individuals who would have been eligible for coverage under the 

Combined Fund but for its cutoff date. It also covers “orphan” retirees whose previous employer 

had failed to provide for an IEP as required by the 1978 National Bituminous Coal Wage 

Agreement. See 26 U.S.C. § 9712(b) (establishing eligibility requirements for the 1992 Plan); In 

re Olga Coal Co., 159 F.3d 62, 64-66 (2d Cir. 1998) (describing the formation of the 1992 Plan). 

Accordingly, if a miner receives benefits under the 1992 Plan, it is because the miner was 

covered under an IEP as required by the 1978 National Bituminous Coal Wage Agreement, or 

because the miner would have fit the eligibility requirements under the UMWA 1950 Benefit 

Trust or the UMWA 1974 Benefit Trust. See In re Olga Coal Co., 159 F.3d at 65; Holland v. 

Double G Coal Co. Inc., 888 F.Supp. 351, 354 (S.D.W. Va. 1995) (“[T]he 1992 Benefit Plan is 

designed to ‘backstop’ the first two vehicles of health coverage and provide coverage for those 

who do not receive benefits under the Combined Fund or individual employer plans.”). Both the 

scenarios for participation in the 1992 Fund require the initial participation in a UMWA benefit 

trust or a UMWA collectively bargained agreement. 

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 The only reason these retirees receive benefits under the Coal Act Funds is because they 

are members of the UMWA who previously received coverage pursuant to collective bargaining 

agreements. Section 1114(b)(1) provides that a labor union shall be the authorized representative 

for a retiree if the retiree receives “any retiree benefits covered by a collective bargaining 

agreement.” 11 U.S.C. § 1114(b)(1). The retirees receiving benefits pursuant to the Coal Act 

Funds are members of the UMWA and receive benefits covered by collective bargaining 

agreements. 

The Coal Act anticipates UMWA involvement in the distribution of benefits. Section 

9711 of the Coal Act states that the “last signatory operator shall not be treated as failing to meet 

the requirements of subsection (a) or (b) if benefits are provided to eligible beneficiaries under 

managed care and cost containment rules and procedures described in section 9712(c) or agreed 

to by the last signatory operator and the United Mine Workers of America.” 26 U.S.C. § 9711(d). 

The UMWA asked the Debtors for information during the negotiations relating to Coal Act 

retirees. The Coal Act Funds never made any motion to reconstitute the existing Retiree 

Committee that the Court appointed in this case to broaden its mandate, or otherwise seek to 

establish a different authorized representative for the Coal Act retirees. As the UMWA already 

represents the retirees receiving benefits under the Coal Act and they receive other benefits 

pursuant to collective bargaining agreements, the Court finds it naturally appropriate that it be 

the authorized representative of the retirees under the Coal Act. 11 U.S.C. § 1114(b)(1). No other 

party is better situated than the UMWA to represent these retirees. 

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The Debtors Have Met the Substantive Requirements of §§ 1113 & 1114 

 The Objectors question whether the Debtors have met the nine-factor test set forth in

American Provision Co., in order to obtain relief under §§ 1113 and 1114 of the Bankruptcy 

Code. 44 B.R. at 909. The nine-factor test requires that: 

1. The debtor in possession must make a proposal to the Union to modify the 

collective bargaining agreement. 

2. The proposal must be based on the most complete and reliable information 

available at the time of the proposal. 

3. The proposed modifications must be necessary to permit the reorganization of 

the debtor. 

4. The proposed modifications must assure that all creditors, the debtor and all of 

the affected parties are treated fairly and equitably. 

5. The debtor must provide to the Union such relevant information as is necessary 

to evaluate the proposal. 

6. Between the time of the making of the proposal and the time of the hearing on 

approval of the rejection of the existing collective bargaining agreement, the 

debtor must meet at reasonable times with the Union. 

7. At the meetings the debtor must confer in good faith in attempting to reach 

mutually satisfactory modifications of the collective bargaining agreement. 

8. The Union must have refused to accept the proposal without good cause. 

9. The balance of the equities must clearly favor rejection of the collective 

bargaining agreement. 

Id. 

While the Objectors’ primary focus is that it is not “necessary” that the Debtors obtain 

the requested relief, see 11 U.S.C. § 1113(b)(1)(A) (requiring that the debtors proposal be 

“necessary to permit the reorganization of the debtor); 11 U.S.C. § 1114(g)(3) (conditioning any 

relief unless the court finds that the modification “is necessary to permit the reorganization of the 

debtor”), the Court will analyze each of the nine elements for compliance. 

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The Debtors Made a Timely Initial Proposal 

Sections 1113 and 1114 require the Debtors to make a proposal to an authorized 

representative or the union prior to filing their Rejection Motion. 11 U.S.C. §§ 1113(b)(1)(A), 

1114(f)(1)(A); see Walter Energy, 542 B.R. 884 (“[T]he bar for satisfying this requirement is 

low because in most cases, this factor is a ‘routine formality.’”). The Debtors made their initial 

proposal to the UMWA on January 4, 2016. The Debtors filed their Rejection Motion with the 

Court on March 28, 2016. As the Court has found that the UMWA is the authorized 

representative for the Coal Act Funds, the Debtors’ January 4 Proposal satisfied this requirement. 

The Initial Proposal was Based on Complete 

Information, and the Debtors Provided the 

Objectors with the Required Information 

Factors two and five require that the proposal must be based on “complete and reliable 

information available at the time of such proposal” and the debtors must provide “relevant 

information as is necessary to evaluate the proposal.” 11 U.S.C. § 1113(b)(1)(A), (B); 11 U.S.C. 

§ 1114(f)(1)(A), (B). The UMWA admits that it received information from the Debtors. It 

complains, however, that the information it received was incomplete because the Debtors’ 

business plan was not dynamic. The UMWA also contends that the Debtors failed to provide 

mine-specific information. 

“The debtor is required to gather the ‘most complete information at the time and to base 

its proposal on the information it considers reliable.’” See In re AMR Corp., 477 B.R. 384, 409 

(Bankr. S.D.N.Y. 2012) (quoting In re Karykeion, Inc., 435 B.R. 663, 678 (Bankr. C.D. Cal. 

2010)). The debtor must provide the union or authorized representative with a business plan that 

can be manipulated by the union as well as the underlying data that supports the business plan. 

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See In re Patriot Coal Corp., 493 B.R. 65, 115 (Bankr. E.D. Mo. 2013) (“[T]he debtor must 

provide the union with a dynamic business model . . . which the union can use to change inputs 

and evaluate diverging data.”). Importantly, “debtor can only be required to provide information 

that is within the debtor's power to provide.” In re Pinnacle Airlines Corp., 483 B.R. 381, 411 

(Bankr. S.D.N.Y. 2012). Accordingly, a proposed buyer of a debtors’ business operations need 

not provide its own business plan. See Walter Energy, 542 B.R. at 887. 

At the time of the January 4 Proposal, the Debtors’ data room was populated with over 

22,000 pages of information. The UMWA had access to all this information. The Debtors 

timely complied with all of the requests for additional data made by the UMWA. The Debtors 

added new information to the data room in most cases within twenty-four hours of the receipt of 

a UMWA request. On January 30, 2016, the Debtors uploaded their dynamic business model to 

the data room. The Debtors developed their business plan with the assistance of their 

restructuring advisors, McKinsey Recovery & Transformation Services LLC (“McKinsey”). The 

Debtors have considered revisions to their business plan as market conditions in the industry 

have continued to deteriorate. The Debtors’ financial outlook has only worsened since the 

Debtors made the January 4 Proposal. 

There was no evidence that the Debtors did not base their January 4 Proposal on a full 

and complete account of the information available “at the time.” 11 U.S.C. §§ 1113(b)(1)(A), 

1114(f)(1)(A) The Debtors provided the UMWA with enough information to evaluate the 

Debtors’ proposal. 11 U.S.C. §§ 1113(b)(1)(B), 1114(f)(1)(B). The Debtors offered to meet with 

the UMWA throughout the negotiation process. The Debtors responded quickly and efficiently 

to data requests. The Debtors did provide the UMWA with a dynamic business model that was 

supported by over 39,000 pages of information in its data room. See e.g., Walter Energy, 542 

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B.R. 886-88; In re 710 Long Ridge Road Operating Co., LLC, 518 B.R. 810, 834-35 (Bankr. 

D.N.J. 2014); Patriot Coal, 493 B.R. at 114-18. The Debtors have met their burden under factors 

two and five. 

The Relief is Necessary to Permit a Reorganization 

The Court must find that the requested relief in the Debtors’ Rejection Motion is 

necessary for the Debtors to reorganize. The UMWA argues that the Debtors failed to meet their 

burden because the Debtors’ proposals are not narrowly tailored and because some of their 

modifications would only have a negligible impact on the Debtors’ financial condition. The 

Coal Act Funds echo similar arguments and emphasize the relatively small amount of money the 

Debtors owe to the Coal Act Funds compared to the Debtors’ larger obligations under the 

collective bargaining agreements. The Court is familiar with the dire market conditions that 

confront the Debtors’ business operation. The coal industry is not merely in the trough of a 

business cycle, as the UMWA would suggest. The Debtors simply cannot sustain viability 

without reducing annual spending. The Debtors’ labor force is an essential component of the 

Debtors’ spending reduction initiative. The Debtors’ non-union labor force has suffered through 

significant cuts to both wages and benefits. The contentions of the UMWA to the contrary 

notwithstanding, the relief requested in the Rejection Motion will not provide the Debtors with a 

windfall at the expense of the Union Employees. 

The Court of Appeals of the Fourth Circuit has not adopted a definition for “necessary.” 

The Court of Appeals for the Third Circuit, relying in large measure upon the legislative history 

behind § 1113, construed the term to mean modifications necessary to prevent the debtor’s 

liquidation. See Wheeling-Pittsburgh Steel Corp. v. United Steelworkers of Am., AFL-CIO, CLC, 

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791 F.2d 1074, 1089 (3d Cir. 1986). The Court of Appeals for the Second Circuit found the 

Third Circuit’s interpretation “troubling” and went on to “conclude that the necessity 

requirement places on the debtor the burden of proving that its proposal is made in good faith, 

and that it contains necessary, but not absolutely minimal, changes that will enable the debtor to 

complete the reorganization process successfully.” See Truck Drivers Local 807, Int’l Bhd. Of 

Teamsters, Chauffeurs, Warehousemen & Helpers of Am. v. Carey Transportation, Inc. (In re 

Carey Transportation Inc.), 816 F.2d 82, 89-90 (2d Cir. 1987). Courts have found that the 

“necessary” standard has been satisfied when a debtor has proven that modification or rejection 

is necessary to achieve a sale under § 363 of the Bankruptcy Code. See Walter Energy, 542 B.R. 

890 (requiring only that the debtor’s “Final Proposal be necessary to permit the Debtors’ 

reorganization –i.e., . . . those modifications necessary to consummate a going-concern sale”); 

Karykeion, 435 B.R. at 679 (finding the debtor had proven that rejection was necessary when the 

closing of a § 363 sale was contingent on rejection of a collective bargaining agreement) 

The Debtors booked a loss of $1.47 billion in 2015. The Debtors’ losses through the first 

three months of 2016 were $182 million. The Debtors have consumed almost $300 million in 

cash since the Petition Date. Throughout this case, the price of coal has continued to fall. The 

Debtors cash burn rate is unsustainable. The uncontroverted testimony of the financial advisor 

engaged by the Debtors in this case was that the relief requested by the Debtors in their Rejection 

Motion was essential to effectuating the Debtors’ reorganization.20 The Stalking Horse Bidder 

will not purchase the Core Assets if they remain subject to the collective bargaining 

 

20 Kevin Carmody (“Carmody”) leads the corporate restructuring service line at McKinsey. At the Hearing, 

Carmody testified: “I'm very concerned that if we don't get relief under the Coal Act and we don't hit our business 

plan, . . . all the variables that we talked about in this case, that we would not successfully be able to reorganize the 

business, and that could result in a liquidation. So based on that, I think it's important and essential to get relief.” 

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agreements.21 The price the Debtors will receive for the sale of their Core Assets will fall 

without a stalking horse bidder. The Debtors have been attempting to sell their Core Assets for 

many months. No viable bidder has indicated a willingness to purchase the Core Assets subject 

to the Debtors’ collective bargaining agreements.22 

The arguments advanced by the Coal Act Funds take a slightly a different tact. They 

point to the $800 million in cash reserves the Debtors’ hope to have on hand as of June 30. The 

Coal Act Funds observe that the Debtors’ Coal Act obligations represent less than 1% of this 

expected cash reserve. The requested relief amounts, therefore, to very little. This argument 

ignores the truly daunting scale of the liabilities facing the Debtors. The Debtors’ reclamation 

obligations to the states of West Virginia and Wyoming alone exceed $700 million. See In re 

Alpha Nat. Res., 544 B.R. 848, 853 (Bankr. E.D. Va. 2016). The Debtors’ have various other 

liabilities, such as $692 million owed to their DIP Lenders, $1.25 billion due to their first lien 

lenders, $714 million outstanding to their second lien lenders, and $2.1 billion owed on 

unsecured notes. The Debtors’ April 2016 monthly operating report listed over $7.5 billion in 

total liabilities. The elimination of the Debtors’ Coal Act obligations is not rendered 

unnecessary solely because the Debtors’ have other liabilities that dwarf their Coal Act 

obligations in comparison. The Debtors immediate need is to balance their cash flows and 

reduce their spending. Reducing the Debtors’ Coal Act obligations brings the Debtors closer to 

achieving this goal. If the Debtors fail to balance their cash flows they may fail to timely confirm 

 

21 Either rejection of the collective bargaining agreements or waiver of the successorship clause by the UMWA is a 

condition to closing the APA. 

22 The Debtors’ investment banker, Rothschild, Inc., reported that the Debtors have contacted over 150 potential 

purchasers, and received over twenty-four formal indications of interest. None of these indications of interest had a 

cash offer for a UMWA mine complex, and no other viable bidder offered to assume the Debtors’ collective 

bargaining agreements. 

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a Chapter 11 plan of reorganization. This could trigger a default under the DIP Financing 

Agreement and lead to a full-scale liquidation. 

Finally, the UMWA argues that it is unnecessary to eliminate the UMWA collective 

bargaining agreements because the UMWA operated mine complexes are cash flow positive. 

The Court is not persuaded. The Debtors business does not operate as a confederation of 

individual mines – the Debtors operate as a single, fully integrated enterprise. No such mine-bymine analysis is appropriate. In re Trump Entm’t Resorts, Inc., 519 B.R. 76, 92 (Bankr. D. Del. 

2014) (analyzing § 1113(b) of the Bankruptcy Code with respect to “the Debtors” without 

distinguishing the application on a per-debtor or per-subsidiary basis). 

It is incumbent upon a court to consider a debtor’s proposal in its entirety. A debtor is 

not required to prove that every part of its proposal is the necessity. See Horsehead Indus., 300 

B.R. at 584. “If a debtor were required to prove the necessity of each element of its proposal, a 

union could defeat the motion by singling out any element of the proposal as unnecessary where 

an alternative could be reasonably substituted.” Patriot Coal, 493 B.R. at 125. (citing New York 

Typographical Union No. 6 v. Royal Composing Room, Inc. (In re Royal Composing Room, 

Inc.), 848 F.2d 345, 348 (2d Cir. 1988)). The Court will not scrutinize whether each individual 

modification is necessary. Instead, the Court will consider the Debtors’ proposal as a whole and 

ask whether the proposal is necessary to effectuate a reorganization. 

The Court finds that the Debtors have met their burden to prove that the rejection of the 

collective bargaining agreements and the modification of their retiree benefits are necessary 

under both the Second Circuit and the Third Circuit tests. The Court finds that the relief 

requested in the Rejection Motion is necessary for the Debtors to have any hope for effectuating 

a reorganization in this case. 

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All Parties are Treated Fairly and Equitably 

Sections 1113 and 1114 require that the debtor’s modification treat the affected parties 

fairly and equitably. See 11 U.S.C. §§ 1113(b)(1)(A), 1114(f)(1)(A). The purpose of this 

requirement “is to spread the burdens of saving the company to every constituency while 

ensuring that all sacrifice to a similar degree.” In re Century Brass Prods. Inc., 795 F.2d 265, 

273 (2d. Cir. 1986). To determine whether all parties are proportionally sharing in the burden, a 

court can consider pre-petition wage and benefit reductions. See Carey Transportation Inc., 816 

F.2d at 91. A debtor’s managers and non-union employees should share in any reductions. See 

id. at 90-91; In re Indiana Grocery Co., Inc., 136 B.R. 182, 194 (Bankr. S.D. Ind. 1990) (finding 

a debtor failed the “fair and equitable” test when the debtor’s management had no reduction in 

compensation). However, “[t]he ‘fair and equitable’ requirement does not mean that the nonunion employees must take pay reductions in equal percentages.” Walter Energy, 532 B.R. at 

892 (citing In re Alabama Symphony Ass’n, 155 B.R. 556, 575 (Bankr. N.D. Ala. 1993)); see 

Indiana Grocery, 136 B.R. at 194 (“Equity under section 1113 means fairness under the 

circumstances, not a dollar for dollar comparison.”). 

The Court finds that the Debtors’ non-union and union employees have been treated in a 

fair and equitable manner. The Debtors’ non-union employees have suffered all of the labor cost 

reductions up until the Rejection Motion. The Debtors have cut their non-union benefits twice, 

frozen non-union wages, and terminated almost 1500 non-union employees. The UMWA does 

not dispute that the non-union employees have shared in the sacrifice. Instead, the UMWA 

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contends that the Debtors’ Key Employee Incentive Program (KEIP)23 demonstrate that the 

Debtors proposal is not “fair and equitable.” 

As the Court found when it approved the KEIP, the Debtors’ senior management has 

experienced a reduction in total compensation. But more importantly, the Debtors’ KEIP is 

critical to the Debtors’ resurgence. The KEIP will ensure that Debtors’ management remains 

focused through the bankruptcy proceedings. The incentives under the KEIP will be paid only if 

success is achieved. That success will inure to the benefit of both union and non-union 

employees of the Debtors. See Walter Energy, 542 B.R. at 893 (finding that the key employee 

plan was “critically necessary” to ensure the debtors’ operations could be sold as a going concern 

and promoted fair and equitable treatment). 

The Debtors Negotiated in Good Faith with the Union 

Factors six and seven require that the Debtors meet with the union at reasonable times, 

and negotiate in good faith. 11 U.S.C. §§ 1113(b)(2), 1114(f)(2). No party disputes that the 

Debtors met with the Union at reasonable times. The UMWA disputes that the Debtors 

negotiated in good faith. The UMWA contends that any chance for compromise with the Union 

was eliminated when the Debtors entered into the agreement with the Stalking Horse Bidder. 

The UMWA argues that the refusal of the Stalking Horse Bidder to accept the collective 

bargaining agreements forced the Debtors to file the Rejection Motion. The UMWA relies on 

Lady H Coal Co. to support its position. 

 

23 The Debtors’ KEIP offered incentive payments to fifteen member of the Debtors’ senior management team if the 

Debtors met certain performance metrics. The four metrics were: i) liquidity; ii) cost savings; iii) work place safety; 

and iv) environmental compliance. The amount of the incentive payment depends entirely on the threshold level of 

achievement attained. See Alpha Nat. Res., 546 B.R. at 353-54. 

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In Lady H Coal, the United States Bankruptcy Court for the Southern District of West 

Virginia found that a debtor had not met the good faith requirements for rejection under § 1113 

when the Debtor was “locked into an agreement” with a purchaser prior to beginning 

negotiations with the union and did not pursue a sale with a buyer who was willing to assume the 

collective bargaining agreement. Lady H Coal, 193 B.R. at 242. The case at bar is different. 

The Debtors did not sign the APA until well after negotiations had begun with the Union. See 

Walter Energy, 542 B.R. at 894-95. Additionally, no party has put forth a viable bid to assume 

the Debtors’ obligations under their collective bargaining agreements. The Debtors recognized 

that they could not force the Stalking Horse Bidder to assume the collective bargaining 

agreements. The Debtors, therefore, facilitated negotiations between the UMWA and the 

Stalking Horse Bidder directly. These negotiations potentially proved fruitful. The UMWA 

believes that it may have a deal that is better than the Debtors’ proposal.24 The Court finds the 

Debtors have acted in good faith throughout the negotiations. The Debtors have submitted 

proposals, responded to information requests, and were willing to meet with the union frequently 

throughout the negotiations. 

The Union Refused to Accept the Proposal Without Good Cause 

It must be shown that the union rejected the Debtors’ proposals “without good cause.” 11 

U.S.C. §§ 1113(c)(2), 1114(g)(2). Once a union rejects an offer from a debtor, it is incumbent 

on the union to produce evidence that it had good cause to reject the proposal. See Patriot Coal, 

493 B.R. at 135 (“The union has the burden of proof that it had good cause to reject the debtor’s 

 

24 Counsel for the UMWA stated at the Hearing that the UMWA had very recently received an offer from the 

Stalking Horse Bidder. Although the UMWA opposed the relief in the Rejection Motion, the UMWA planned to 

send the proposal from the Stalking Horse Bidder out to its membership for its consideration. 

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proposal.”); American Provision, 44 B.R. at 910. “Where a proposal is necessary for the 

debtor’s viability and the other section 1114 requirements are met, no good causes [sic] exists to 

reject the proposal, even if the proposal requires sacrifices by the union or retirees.” Walter 

Energy, 542 B.R. at 895. If a union fails to compromise with the debtor, its rejection shall be 

without good cause. See Royal Composing Room, 848 F.2d at 349. A union can prove it had 

good cause to reject a debtor’s proposal when the union’s counter proposal adequately meets the 

debtor’s need for spending reductions. See id. Because the UMWA has rejected the Debtors’ 

proposals, they must demonstrate their “reason for declining to accept the debtor’s proposal in 

whole or in part.” Carey Transportation., 816 F.2d at 92. 

The Court did receive into evidence the UWMA Counter Proposal. No direct evidence 

was offered, however, as to why the UMWA rejected the Debtors’ January 4 Proposal. The 

UMWA Counter Proposal was only capable of being accepted in its entirety, and it was 

expressly “conditioned on acceptance and adoption by any purchaser of UMWA-represented 

assets of the bankrupt estate.” Under the UMWA Counter Proposal, there could be no agreement 

unless the Debtors were able to obtain the approval of the Stalking Horse Bidder. The Union has 

failed to carry its burden of proving that it had just cause for its insistence on the successorship 

provision. The Debtors advised the UMWA on multiple occasions that the Debtors could not 

force any potential purchaser to accept an agreement. See Walter Energy, 54 B.R. 897 (“It was 

not, and is not, reasonable or good cause, for the Union to outright reject a proposal by 

demanding conduct or action the Debtors do not control.”). Moreover, none of the viable bidders 

for the Debtors’ Core Assets indicated a willingness to accept the Core Assets subject to the 

collective bargaining agreement. Consequentially, the UMWA’s insistence on the inclusion of a 

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term that was a poison pill to any sale of the Core Assets constitutes a rejection without just 

cause. 

The Balance of the Equities Favor Rejection 

The final factor this Court must weigh is whether the balance of equities favors rejection 

or modification. 11 U.S.C. §§ 1113(c)(3), 1114(g)(3). The Second Circuit has identified least 

six “equitable considerations” that a court may consider: 

(1) the likelihood and consequences of liquidation if rejection is not permitted; 

(2) the likely reduction in the value of creditors’ claims if the bargaining 

agreement remains in force; 

(3) the likelihood and consequences of a strike if the bargaining agreement is 

voided; 

(4) the possibility and likely effect of any employee claims for breach of contract 

if rejection is approved; 

(5) the cost spreading abilities of various parties, taking into account the number 

of employees covered by the bargaining agreement and how various 

employees’ wages and benefits compare to those of other in the industry; 

(6) the good or bad faith of the parties in dealing with the debtor’s financial 

dilemma. 

Carey Transportation., 816 F.2d at 93. Many of the six factors are already encompassed in the 

Court’s previous nine-factor analysis. See In re Mesaba Aviation Inc., 341 B.R. 693, 758 (Bankr. 

D. Minn.) rev’d on other grounds 350 B.R. 435 (D. Minn. 2006). A court is not limited to just 

the six equitable considerations set forth in Carey Transportation. It can consider other 

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equitable principles as well. See e.g., Pinnacle Airlines Corp., 483 B.R. at 410 (considering an 

additional equitable factor: “whether imposing the requested pay cuts or other concessions would 

still be preferable to the loss of everyone’s jobs.”). 

 The threat of liquidation and loss of every union and non-union job permeates the Court’s 

concern in this case, and overrides the other equitable considerations. Without a rejection of the 

collective bargaining agreements, the sale to the Stalking Horse Bidder will not close. There has 

been no indication that any other party is willing to step forward and assume the collective 

bargaining agreements. The Debtors desperately need to bring their cash bleed under control if 

they have any hope of avoiding liquidation. No party has suggested how the Debtors might 

replace the $60 million in expected savings from the Rejection Motion with savings from some 

other source.25 The Court finds that the balance of equities weighs in favor of the Debtors. 

Conclusion 

The Court finds that §§ 1113 and 1114 of the Bankruptcy Code apply to this proceeding. 

The Court also finds that the Debtors’ obligations under the Coal Act are “retiree benefits” and 

that the Debtors negotiated and presented their January 4 Proposal to the “authorized 

representative” of the Coal Act Funds. Finally, the Court concludes that the Debtors have 

satisfied the nine-factor test set forth in American Provision Co. in order to obtain relief under §§ 

1113 and 1114 of the Bankruptcy Code to terminate their collective bargaining agreements with 

the UMWA and modify their outstanding retiree benefit obligations. Accordingly, the Court will 

 

25 The Court considered in its analysis of the equities that the relief requested in the Rejection Motion would not 

necessarily result in an actual loss of retiree benefits for the Debtors’ Union Employees. The 1,070 retirees who 

receive benefits from the Debtors’ IEP will be transitioned to the 1992 Plan. See 26 U.S.C. § 9712(b)(2)(B). 

Additionally, funding for the Coal Act Funds is backstopped up to certain limits by the federal government and by 

the Abandoned Mine Reclamation Fund. See 30 U.S.C. §§ 1231, 1232(h)-(i). The Debtors have also stated their 

intention to establish a voluntary employees’ beneficiary association for some of their retirees who are affected by 

the Rejection Motion. See 26 U.S.C. § 501(c)(9). 

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permit the Debtors to reject their collective bargaining agreements with the UMWA pursuant to 

§ 1113(c) of the Bankruptcy Code and to modify their retiree benefit obligations to the UMWA 

Funds and (under the Coal Act) with the Coal Act Funds pursuant to § 1114(g) of the 

Bankruptcy Code. 

A separate order shall issue. 

Entered: ____________________________ 

 /s/ Kevin R. Huennekens 

 UNITED STATES BANKRUPTCY JUDGE 

May 24 2016

Entered on Docket: 5/24/16

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