Should Patriot Coal Be Allowed To Shift Benefit Costs To Taxpayers By Fraudulent Bankruptcy?

Should Patriot Coal be allowed to shift healthcare costs to taxpayers?

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It's pretty clear what happened here: The Patriot Coal Corporation was created by Peabody Energy and Arch Coal so it could file for bankruptcy and rob workers of their pensions and health care coverage. The UMW says the company was designed to fail, and points out that not one of the people currently collecting benefits from the company ever worked for them.

We will eventually shut down these mines, because we have to, in order to save what's left of our environment. But there's no way in hell our judicial system should strip those workers of every single benefit they earned in the mines:

And the problems faced by Patriot miners and retirees is getting more attention, first with this story in the Wall Street Journal:Patriot Coal Corp., which is in bankruptcy-court proceedings, plans to seek to terminate the health benefits of up to 1,000 salaried retirees, according to court filings.

During the Patriot bankruptcy most attention has focused on about 22,000 active union miners, union retirees and their beneficiaries who are fighting to keep health benefits. While smaller in number, the salaried retirees could stand to lose more than unionized counterparts.

Salaried retirees, for example, would be ineligible to participate in a trust Patriot has proposed to cover some health benefits for retired United Mine Workers of America members …

… Many salaried retirees—including foremen, superintendents and other supervisors—worked alongside unionized miners in underground coal mines for decades but don’t have protections guaranteed by collective bargaining agreements.

In December, Patriot sent a letter to salaried retirees saying it intended to terminate all of their retiree health and life-insurance benefits. A hearing is scheduled for Tuesday in U.S. Bankruptcy Court for the Eastern District of Missouri to create a committee to represent salaried retirees’ claims.

“In this case the company is saying we want to terminate 100% of your benefits, and we don’t want you to have any unsecured claim,” said Jon Cohen, a Chicago attorney representing the retirees.

And there was also a piece from The New Republic about the controversy:

There was much talk during the 2012 campaign about corporations breaking faith with workers, courtesy of Team Obama’s highly effective attacks on Mitt Romney’s record at Bain Capital. President Obama’s subsequent victory over Romney was taken by some as a repudiation of the vulture-capitalist vision for America. But the Patriot Coal case now playing out in bankruptcy court in St. Louis and in Charleston, W.V., where the UMWA has brought suit against Peabody and Arch, is a blunt reminder that the election in fact settled nothing: questions of basic fairness in American economic life remain as contested as ever.

If anything, the matter of Patriot Coal suggests the stakes have gotten only larger. Veteran observers of employer-labor relations say that Peabody’s Patriot Coal gambit—carving out an entirely new company that seemed designed to fail in order to offload retiree obligations—is as brazen as anything they’ve ever seen.

“It’s rather extraordinary,” said Robert Bruno, director of the University of Illinois-Chicago’s School of Employer-Labor Relations. “It’s just a more elaborate attempt to detach the employer from any kind of legacy obligations for their employees, a further abdication, or departure, from the post-war era’s contract in which employers bore some responsibility…Now that model of providing some level of social insurance has been torn asunder, and the burdens have been handed to the individual worker.”

The Patriot Coal bankruptcy has even become the subject of a paper byTemple University business professor Bruce Rader, who argues that Peabody and Arch’s maneuver is questionable even from the standpoint of a strong believer in free markets. The maneuver, he writes:

[....] ultimately will shift the burden to the general public or in a word socialize the health care benefits since the miner’s ability to pay will not cover this obligation and then the health care burden will be shifted to the government. In essence we will all pay the costs. This is a perfect example of the use of the legal system to socialize the costs and therefore lead to a transfer of costs to the general public from the shareholders of a company.

The question becomes, as a society, do we want to condone this? Should the profitability of these companies be enhanced at the general public’s expense, and what effect will this have on our system of allocating capital? Free-market capitalism is ultimately a system for the allocation of capital in a society and the efficient allocation of capital is the driving force behind the economic growth that this country has experienced. For this system to work, the participants must suffer the consequences and reap the benefits of their actions.

Peabody Energy was the 2011 winner of ALEC's Private Sector Member of the Year Award, which I think tells you everything you need to know.

About Susie Madrak

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