) WALTER ENERGY, INC., et al., ) Case No (TOM) Debtors, ) ) ) Chapter 11

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1 Main Document Page 1 of 29 UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF ALABAMA SOUTHERN DIVISION ) In re: ) Chapter 11 ) WALTER ENERGY, INC., et al., ) Case No (TOM) Debtors, ) ) (Jointly Administered) ) OPPOSITION OF UNITED STEELWORKERS TO DEBTORS MOTION PURSUANT TO 11 U.S.C. 105(a) 1113(c) AND 1114(g) United Steel, Paper and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union ( United Steelworkers, USW or the Union ), the collective bargaining representative of the employees of the Debtor Walter Coke Co. ( Walter Coke or the Debtor ) at its Birmingham facility, 1 by and through its undersigned counsel, hereby objects to the Debtors Motion Pursuant to 11 U.S.C. 105(a), 1113(c) and 1114(g) for an Order (I) Authorizing the Debtors to (A) Reject Collective Bargaining Agreements (B) Implement Final Labor Proposals, and (C) Terminate Retiree Benefits and (II) Granting Related Relief [Docket No. 1094] (the Section 1113/1114 Motion ). PRELIMINARY STATEMENT The abiding theme of this case since the petition date has been the senior secured lenders desire to take advantage of current market conditions and acquire the Debtors 1 As more fully described below, USW and Walter Coke were parties to a collective bargaining agreement dated March 25, 2010 through December 6, 2015 which sets the terms and conditions of employment for USW-represented employees at the Birmingham facility. In addition, United Steelworkers and Walter Coke are parties to agreements under which Walter Coke provides retiree benefits within the meaning of Section 1114(a) of the Code, 11 U.S.C. 1114(a), to former USW-represented employees, their surviving spouses or other eligible dependents. United Steelworkers is the authorized representative under Section 1114 of the former USW-represented employees, their surviving spouses or other eligible dependents who are owed retiree benefits under USW s agreements with Walter Coke.

2 Main Document Page 2 of 29 businesses, shorn of retiree obligations, and the Debtors desire to enable this to occur, even if it means shirking contractual and statutory obligations. This was so when the Debtors pursued the long-ago abandoned Restructuring Support Agreement. This remains so now that the Debtors are pursuing a sale of assets pursuant to Section 363. This all-too-common play may be the way that bondholders and private equity firms look at American industry. But, the risk in these cases won t be borne by those who always have the ability to invest their fund elsewhere, but rather by Walter Coke s active and retired employees (as well as their surviving spouses and beneficiaries), for whom the continued survival of the business is their only shelter. The sale, married with the application under Sections 1113 and 1114, poses grave uncertainties and substantial hardship. Under a proposed Asset Purchase Agreement between the Debtor and Coal Acquisition LLC ( Coal Acquisition or CA ), an acquisition vehicle created by Walter Coke s senior secured lenders, the coke plant which employs upwards of 120 Steelworkers will either be sold or, at the discretion of the senior lenders, turned back to the estate with certainty of closure and unemployment for all USWrepresented employees. In addition, Walter Coke retirees, their spouses and beneficiaries, face the Debtors insistent demands for the immediate termination of earned retiree medical and other benefits and the significant risk that medical claims incurred before termination of the programs will not be paid. Among other things, CA s acquisition of Walter Coke is predicated on negotiation of an acceptable labor agreement with USW. The Debtor s agreement with United Steelworkers expired on December 6, Steelworker representatives have been bargaining with Coal Acquisition and have exchanged proposals for the terms of a new agreement which it is hoped - 2 -

3 Main Document Page 3 of 29 will lead CA to acquire Walter Coke and preserve the jobs of over 100 USW-represented employees. While bargaining with CA, USW has also been in bargaining with Walter Coke, primarily with respect to the effect of the cessation of the Debtor s coking operations. In the midst of these negotiations, Walter Coke has filed the instant motion to reject the (now expired) collective bargaining agreement to free the Debtor of the successorship provision of that agreement and to immediately terminate retiree health benefits and proceed with a distress termination of the defined benefit pension plan covering Walter Coke s active and retired USWrepresented employees. We show below that the Section 1113/1114 Motion should be denied. While there is no question that Walter Coke will either be sold or closed, it does not need to reject the labor agreement, particularly where the ostensible reason is to void the successorship obligations. That is because USW has not demanded that the prospective purchaser assume the agreement between United Steelworkers and the Debtor. Rather, USW and the purchaser have been and are in active negotiations over a successor agreement that would apply should the purchaser acquire and operate the coke plant. For this reason alone, USW has ample cause to reject the Debtor s demand that it agree to delete the successor provisions of the agreement. Moreover, because the labor agreement between the Debtor and USW expired on December 6, as a matter of law, there is nothing to reject. Section 1113 governs the rejection of labor agreements, not the statutory status quo which must be maintained under federal labor law once a labor agreement expires (and which is not identical to the terms of the expired labor agreement) pending bargaining to a good-faith impasse. Rejection of the now-expired labor agreement is not authorized as a matter - 3 -

4 Main Document Page 4 of 29 of law and would be unnecessary under the circumstances even if the contract were still in effect and subject to rejection. Second, with respect to the Debtor s demands concerning retiree health and the defined benefit pension plan, the Union has good cause to reject those proposals as well. With respect to retiree health the Debtor has proposed that its obligation to pay retiree health claims end upon the sale and that claims for services rendered before the sale that have not been paid will not be paid. This request for authority not to pay benefits for which coverage existed at the time services were rendered is a request for retroactive relief and is not authorized as a matter of law. Further, this demand is made while at the same time the Debtor is pursuing a generous management bonus plan that would reward executives for remaining with the Debtor to assist in its sale to the secured lenders. So, while the Debtor proposes to terminate benefits for retirees who earned them for past service benefits that have been the product of collective bargaining agreements dating back decades it would reward its management team if they agree to remain employed during what the Debtor concedes is an industry-wide economic catastrophe. Under these circumstances the proposal is not necessary or legally authorized, the USW has ample cause to refuse to agree to Walter Coke s legally unauthorized and inequitable treatment of its retirees, and the balance of equities do not clearly the requested retroactive modification of benefits. Similarly, United Steelworkers has also refused to agree today to the termination of the defined benefit plan. While it is clear that the purchaser will not assume the plan, USW has requested and the Debtor has not yet provided basic information concerning the effect of plan termination on active and retired employee s benefits. The Debtor has an obligation to provide relevant information concerning its pension proposal to the Union. It has not done so here. The Section 1113/1114 Motion should be denied

5 Main Document Page 5 of 29 BACKGROUND FACTS At any hearing on the 1113/1114 Motion, USW will establish the following material facts. The Collective Bargaining Agreement Effective Dates USW has represented the employees of Walter Coke and its predecessors for many decades and has for that time been party to a series of collective bargaining agreements with the Debtor that govern the terms and conditions of employment at the Birmingham coke plant. The most recent such agreement became effective March 25, Section 1113/1114 Motion Exhibit E (the CBA ). The CBA expired by its terms this past Sunday, December 6, (See CBA (Section 1113/1114 Motion Exhibit A, Art. 25 at p. 81, which provides that the CBA shall become effective as of March 26, 2010, and shall continue in force until midnight December 6, 2015, and from year to year thereafter until either party notifies the other not less than sixty (60) days prior to the expiration of this Agreement or any extension or amendment therefor that such party elects to terminate or end this Agreement ). USW provided timely notice on September 28, 2015, of its election to terminate the CBA at the December 6 expiration date. On December 4, 2015, USW provided notice of its unconditional offer to continue to work past the expiration date of the agreement under the terms and conditions of the agreement while it negotiated a successor agreement with Coal Acquisition LLC. The union also agreed that if it later decided to commence a strike, it would provide Walter Coke with at least 48-hours notice of its intent to strike in order to permit an orderly and safe shutdown of the facility. In response, the Debtor acknowledged that the CBA had expired and that it would continue the current level of wages, benefits and working conditions after December 6 and through the sale or shut down of the coke plant

6 Main Document Page 6 of 29 Substantive Terms The CBA set forth the full panoply of wages, benefits, working conditions, and other terms and conditions of employment applicable to the coke plant employees. We will address here those provisions that are relevant to the Debtor s application for relief. The successorship obligations of the CBA, which obligations the Debtor seeks to void, are found in the preamble to the agreement, which generally provides that the agreement is between the USW and Walter Coke, Inc. or its successor[.] CBA (1113/1114 Motion Exhibit E), preamble p. 1. The Debtor seeks to reject the CBA in order to, among other things, terminate the existing defined benefit pension plan. The Agreement required Walter Coke to maintain a defined benefit pension plan for USW-represented employees. See CBA (1113/1114 Motion Exhibit E) Art. 18 p. 71. The terms and conditions of the pension plan are set forth in separate plan documents. The Debtor has petitioned pursuant to Section 1114 for permission to terminate its retiree benefit obligations. The Debtor s obligations relative to retiree benefits, including health insurance benefits for retired employees, surviving spouses and other dependents, as well as retiree life insurance benefits, is set forth at Article 16 of the CBA See CBA (Section 1113/1114 Motion Exhibit E) Art. 16 A-C, J-P pp , Specifically, Walter Coke employees who retired before January 1, 1984 are entitled to continued coverage at no cost to the retiree CBA (Section 1113/1114 Motion Exhibit E) Art. 18 A, p. 62. Employees who retired subsequent to January 1, 1984 and prior to December 7, 2001 are entitled to continued coverage with a retiree obligation no greater than that charged similarly situated salaried retirees CBA (Section 1113/1114 Motion Exhibit E) Art. 18 A, pp

7 Main Document Page 7 of 29 Employees who retired after July 1, 2002 are entitled to employer contributions to a Healthcare Reimbursement Account in monthly amounts varying from $250 to $300 (depending upon retirement date) for both retiree and spouse. See CBA (Section 1113/1114 Motion Exhibit E) Art. 16 J-P pp Employees who retired after January 1, 1984 are also entitled to employer-paid life insurance of $4, CBA (1113/1114 Motion Exhibit E) Art. 16 A p. 63. Collapse of the RSA, APA With Coal Acquisition and Section 363 Sale Process On July 15, 2015, coincident with its Chapter 11 filing, the Debtor filed a motion to assume a restructuring support agreement it reached with a steering committee of its first lien lenders. See Debtors Motion for an Order (A) Authorizing the Debtors to Assume a Restructuring Support Agreement and (B) Granting Related Relief [Docket No. 44] ( RSA Motion ). As the Debtor described it, the: RSA Motion [Docket No. 723]. Restructuring Support Agreement provides the framework for a comprehensive restructuring of the Debtors... that (a) contemplates a consensual debt-to-equity conversion of over $1.8 billion of the Company s prepetition secured debt for substantially all of the reorganized Walter Energy s common stock pursuant to a prenegotiated chapter 11 plan between the Debtors and the First Lien Creditors (the Plan ) and (b) permits the Debtors consensual use of the First Lien Creditors cash collateral... to allow the Debtors to pursue confirmation of the Plan, while simultaneously pursuing a sale of all or substantially all of the assets of the Debtors to a new company owned by the First Lien Creditors subject to higher and better bids... which 363 Sale will be effectuated in the event that a Triggering Event occurs and the Debtors are unable to pursue and consummate the Plan. This Court approved the RSA (on amended terms) by order dated September 14, - 7 -

8 Main Document Page 8 of 29 Termination of the RSA On September 28, 2015, this Court entered an order granting the steering committee s emergency motion [Docket No. 746], which the Debtor thereafter joined [Docket No. 774], confirming that the restructuring support agreement terminated by its terms. [Docket No. 796]. As a result, the Debtor proceeded on a sale of its assets pursuant to Section 363 of the Code, 11 U.S.C The APA With Coal Acquisition On November 5, 2015, the Debtor and Coal Acquisition, the acquisition vehicle created by the steering committee of the first lien lenders, signed an Asset Purchase Agreement ( APA ) and the Debtor filed a motion to approve a Section 363 sale process, with CA serving as a stalking horse bidder (the Sale Motion ) [Docket No. 993]. The APA provides that the assets to be acquired shall be transferred at closing to CA free and clear of all Encumbrances and Liabilities... including any successorship obligations under any Collective Bargaining Agreement[.] APA 7.12 p. 75 ([Docket No. 993 at p. 188 of 233]). It goes on to provide two conditions to closing relevant here. First that: (i) the Bankruptcy Court shall have determined that Sellers can sell the Acquired Assets free and clear of any successor clause in the USW Collective Bargaining Agreements, (ii) the USW shall have agreed to waive or remove the successor clause in the USW Collective Bargaining Agreements, or (iii) the Bankruptcy Court shall have granted a motion acceptable to Buyer filed by the applicable Seller pursuant to Section 1113(c) of the Bankruptcy Code authorizing the applicable Seller to reject the USW Collective Bargaining Agreements. APA 9.9(c) p. 85 ([Docket No. 993 at p. 198 of 233]). Second, Section 9.9(b) of the APA provides that [p]rior to Closing the USW will have successfully ratified and executed an initial Collective Bargaining Agreement with Buyer, with all terms and conditions therein being acceptable to Buyer as determined by Buyer in its sole discretion[.] APA 9.9(b) p

9 Main Document Page 9 of 29 ([Docket No. 993 at p. 198 of 233]). CA has the option of excluding the Walter Coke assets from its purchase agreement up to five days before the January 5, 2015 bid deadline. APA 7.8(a) p. 67 ([Docket No. 993 at p. 180 of 233]). Further, if a collective bargaining agreement has not been reached, CA may elect to waive that condition and proceed to acquire the Walter Coke assets and may exercise that option until two weeks before the closing date. APA 7.8(f) p. 70 ([Docket No. 993 at p. 183 of 233]). Collective Bargaining Negotiations As a practical result of the foregoing, USW has been called on to negotiate an agreement with CA to govern continued operation of the coke plant (on the assumption that Coal Acquisition will be the successful purchaser and not exercise its rights to decline to close on the Walter Coke assets) and an agreement with the Debtor with respect to the cessation of its operations and the effect of that on both active employees and retirees. As discussed below, it has done so. On November 6, 2015, the day after the Debtor filed the Sale Motion, Coal Acquisition sent as a courtesy correspondence to USW President Leo Gerard advising that on November 30 it intended to begin to interview present Walter Coke employees for prospective employment with CA. While expressly declining to recognize USW as collective bargaining representative of the employees, that correspondence outlined terms and conditions Coal Acquisition would offer to individuals it would hire. Among other things, the stated terms included substantial pay reductions from that provided in the CBA, the elimination of any employer-funded retirement benefits, and reduction in paid time off and elimination of all premium pay and shift differentials. Employees would be offered participation in CA s medical insurance plan on the same terms as offered to salaried employees, but the details of the plan and its costs were not provided

10 Main Document Page 10 of 29 On November 12, 2015, in a meeting with USW representatives, Walter Coke presented its first proposals to USW following its filing of the Sale Motion. A copy of the November 12 proposal (which the Debtor refers to as its Final Proposal and which it now seeks authority to implement) is Exhibit 1 to the Declaration of Colin W. Farrell, dated November 23, 2015 [Docket No ] (the November 12 Proposal ). The November 12 Proposal makes the following principal demands: remove the language at the beginning of the current Agreement that refers to successor, noting that the Union must negotiate with [CA] the provisions of any labor agreement that will apply to the employees of the coke business ; Termination of the defined benefit pension plan, presumably waiver of the obligation to maintain the plan, so that the Debtor may seek a distress termination of the plan by the Pension Benefit Guaranty Corporation ( PBGC ) under Section 4041 of the Employee Retirement Income Security Act, 29 U.S.C. 1341; and Termination of any retiree health obligations as of the date of the sale under the APA including any that may be or become payable after the date of the sale, whether such benefit vested or accrued before or after the date of the sale, in effect terminating the Debtor s obligation to pay medical claims of retirees for medical services incurred but not paid prior to such date. On November 18, 2015, USW representatives met with CA. Coal Acquisition presented the terms of a draft collective bargaining agreement that it denominated its Initial Contract Proposal. CA s opening proposal used the CBA as a template but included many material differences. The initial proposal reflected the concessionary proposals made in Coal Acquisition s November 6 correspondence concerning initial terms and conditions of employment as described above. It did however include a proposal for employer-funded contributions to a 401k plan absent from the November 6 terms. It also included a substantively broader management rights clause and reduced limits on the employer s ability to have

11 Main Document Page 11 of 29 bargaining unit work contracted out than under the Agreement. Coal Acquisition s proposal not only made no provision for Walter Coke s existing retirees, it contained no proposal to provide a program of post-retirement health care or other benefits to employees who would retire during the term of the proposed agreement. At the meeting, USW asked Coal Acquisition representatives to provide details with respect to a proposed profit sharing plan referenced in Article 21 of the Initial Contract Proposal and there noted as TBD. CA representatives indicated that the details of the plan could only be developed once the debtor provided Coal Acquisition with the details of a new coke supply contract with a major steel producer. Similarly, CA advised that it had not developed the terms of the health insurance plan it intended to make available to Steelworkerrepresented employees. The parties scheduled a follow-up meeting for November 30. USW advised that it intended to provide CA with a counter-proposal at that November 30 meeting. On November 19, 2015, the debtor demanded that USW respond by the following day (November 20) to its November 12 Proposal. See Farrell Decl. Exhibit 2. The following day, USW District Director Daniel Flippo responded to Walter Coke s November 12 Proposal noting that [d]emanding a definitive response after only one meeting is unreasonable and made in bad faith. Farrell Decl. Exhibit 3. USW noted that given the 363 sale process, the pressing negotiations were those between USW and Coal Acquisition and that those negotiations were to resume on November 30. In light of that, the USW observed that the demand to remove the successor language from the CBA was premature. He also noted that while Walter Coke would be going out of business and may need to assert a need to terminate pension, benefit and other obligations its demand that USW immediately accede to the November 12 Proposal was also unnecessary. The USW stated that it would provide an offer

12 Main Document Page 12 of 29 with respect to retiree benefit obligations and would make additional requests for information with respect to the November 12 Proposal. USW also offered to meet to further discuss the November 12 Proposal, noting that in the meantime, the USW will focus on bargaining a mutually acceptable agreement with Coal Acquisition. Farrell Decl. Exhibit 3. The Debtor did not request a further meeting on the November 12 Proposal, see Farrell Decl. Exhibit 4 ( from Debtor s counsel to Director Flippo dated November 20). Instead it filed the Section 1113/1114 Motion on November 23. On November 30, 2015, USW representatives met as planned with CA representatives. Coal Acquisition presented a revised contract proposal to USW which was largely consistent with the November 18 proposal. This November 30 proposal finally contained some aspects of a framework for a profit sharing plan, though, critically, it did not contain relevant financial triggers that would define the amounts eligible to be paid to employees. To that end, CA representatives stated that they still needed to review financial details relating to the Debtor s newly-negotiated coke supply agreement to provide the necessary details. Similarly, the November 30 proposal did not contain and CA stated that it could not provide the terms of the proposed health insurance plan (e.g., employee cost for premiums, co-insurance costs, relevant health network, etc.). USW also presented a contract proposal to CA on November 30. The Union did not propose that Coal Acquisition assume the CBA with Walter Coke notwithstanding the successor provision of the CBA. The USW proposal did contain a proposed health care plan and cost sharing provision. It also proposed that CA provide retiree health care both to Walter Coke retirees (on the same terms as the CBA) and for future retires. While the Union proposed pay rates greater than those in CA s November

13 Main Document Page 13 of 29 proposal, it agreed to Coal Acquisition s proposal with respect to vacation pay entitlement. In the Union s counter, the USW agreed to certain of the proposed revisions to the management rights clause and reduction of certain premium pay and shift differentials as well as to a reduction in the number of job classifications in the plant. The Union also accepted the basic outline of CA s proposed attendance policy (with certain modifications). As to the economics, USW representatives explained to CA that the Union would need to know what Coal Acquisition will propose with respect to employee health care contributions before the USW could make a counterproposal on the wage reductions CA proposed. Further, rather than proposing that CA assume the existing defined benefit pension plan, the USW proposed that CA implement a defined contribution pension plan with fixed contributions. Negotiations between CA and the USW are on-going: the parties have presently scheduled a further meeting for December 10, 2015 in Birmingham. Meanwhile, in relation to effects bargaining, on December 3, 2015, USW presented Walter Coke with a further response to the Debtor s November 12 Proposal and a counter-proposal. The Union agreed to the termination of all existing terms and conditions of employment as of the closing of the sale to CA (reserving the right to engage in effects bargaining should the sale not close) and specifically proposed, consistent with the requirements of law, that retiree health care benefits end with the closing with the Debtor to pay all claims made through the closing of the sale of the coke plant. USW made specific requests relating to benefits provided both active and retired employees as well as for information relating to the proposed termination of the defined benefit pension plan. With respect to the pension plan, USW requested information concerning the affect plan termination would have on the benefits

14 Main Document Page 14 of 29 accrued by plan participants, as well as the Debtor s correspondence concerning the plan to the PBGC. ARGUMENT As reviewed above, at this point the following items remain in dispute with respect to the Debtor s demands: Walter Coke s demand that USW agree to remove successor language from the CBA; Walter Coke s demand that the USW consent to termination of the defined benefit plan, and Walter Coke s demand that the USW accede to the termination of retiree health care benefits as of the sale date with no agreement to pay claims made through that date. We show below that the Debtor has failed to meet the requirements of Sections 1113 or 1114 with respect to these proposals. Specifically, Walter Coke s demand that the USW agree to delete the successor language from the CBA is unnecessary because the Union has not at this time demanded that CA assume the CBA in negotiations. At best this demand is premature and given the status of the relevant negotiations, USW has good cause to reject this demand. In any event, there is no dispute that the CBA has expired; there is now no agreement for this Court to reject. With respect to termination of the defined benefit plan, the Debtor has not provided necessary information concerning this proposal for USW to respond. Finally, with respect to the Debtor s demand that retiree health benefits be terminated, USW has good cause to refuse to accede to Walter Coke s demand that benefits be terminated with no assurance that accrued claims to date be paid and to propose, instead, that the benefits be terminated on closing with claims made through that date paid. Walter Coke s proposal is contrary to the requirement of Section 1114 that retiree benefits be continued through

15 Main Document Page 15 of 29 a decision on a Section 1114 application. Finally, the Debtor s draconian retiree health proposal is inequitable in light of the Debtor s proposed new management retention plan. WALTER COKE HAS FAILED TO MEET THE PROCEDURAL AND SUBSTANTIVE REQUIREMENTS OF SECTIONS 1113 AND 1114 In addition to providing that collective bargaining agreements cannot be modified or rejected absent compliance with Section 1113, Congress accomplished its objective of restoring the balance of power in collective bargaining in bankruptcy by (1) imposing strict procedural requirements that must be satisfied prior to seeking rejection of a collective bargaining agreement, and (2) creating substantive protections, including requirements that a debtor prove that its proposal is limited to those necessary modifications in employee[] benefits and protections that are necessary to permit the reorganization of the debtor and that its proposal assures that all creditors, the debtor and all of the affected parties are treated fairly and equitably. 11 U.S.C. 1113(b)(1)(A) (emphasis added). Section 1113 thus encourages the collective bargaining process as a means of solving a debtor s financial problems insofar as they affect its union employees. In re Century Brass Prods., Inc., 795 F.2d 265, 273 (2d Cir. 1986) (emphasis added). The requirements of Section 1113 prevent debtors from using bankruptcy as a judicial hammer to break the union[,] and the statute s entire thrust is to ensure that well-informed and good faith negotiations occur in the market place, not as part of the judicial process. In re Maxwell Newspapers, Inc., 981 F.2d 85, (2d Cir. 1992) (emphasis added); see also In re Frontier Airlines Holdings, Inc., 2008 WL , at *15 (S.D.N.Y. Nov. 14, 2008) rev d on other grounds, Teamsters Airline Div. v. Frontier Airlines, Inc., 2009 WL (S.D.N.Y. July 20, 2009). Thus, Congress imposed several safeguards on a debtor seeking rejection to insure that employers did not use Chapter 11 as medicine to rid themselves of corporate

16 Main Document Page 16 of 29 indigestion. Century Brass, 795 F.2d at 272. Section 1113 requires three substantive requirements: the proposal is limit[ed] to those necessary modifications in the employees benefits and protection that are necessary to permit the reorganization of the debtor and that insures that all creditors, the debtor and all of the affected parties are treated fairly and equitably[,] 11 U.S.C. 1113(b)(1)(A); the union has rejected the proposal without good cause, 11 U.S.C. 1113(c)(2); and the balance of equities clearly favors rejection. 11 U.S.C. 1113(c)(3). Truck Drivers Local 807 v. Carey Transp., Inc., 816 F.2d 82, 88 (2d Cir. 1987). In addition, the Debtor must demonstrate that it has made a proposal based on the most complete and reliable information available at the time of such proposal[,] 11 U.S.C (b)(1)(a), provided the union with such relevant information as is necessary to evaluate the proposal[,] 11 U.S.C. 1113(b)(1)(B), and met at reasonable times, with the authorized representative to confer in good faith in attempting to reach mutually satisfactory modifications of said agreement. 11 U.S.C. 1113(b)(2). See generally In re Alabama Symphony Ass n, 155 B.R. 556, 576 (Bankr. N.D. Ala. 1993) ( the debtor must have made a serious effort to negotiate ), aff d in part, rev d in part on other grounds, 211 B.R. 65 (N.D. Ala. 1996). The Courts have uniformly held that on each of these elements the debtor bears the burden of proof by a preponderance of the evidence. See, e.g., In re Bruno s Supermarkets, Inc., 2009 WL *3-4 (Bankr. N.D. Ala. April 27, 2009); In re Family Snacks, Inc., 257 B.R. 884, 892 (B.A.P. 8th Cir. 2001) (citations omitted). Section 1114 provides parallel protections where, as here, a debtor seeks to modify or reject the obligation to provide retiree health benefits. See 11 U.S.C Prior to

17 Main Document Page 17 of 29 the enactment of Section 1114, a debtor was generally free, pursuant to Section 365 of the Code, to reject retiree welfare benefits. See In re Farmland Indus., Inc., 294 B.R. 903, 915 (Bankr. W.D. Mo. 2003). However, in 1988, after the bankrupt LTV Steel Company eliminated benefits for its approximately 78,000 retirees, Congress reacted swiftly, enacting Section 1114 to protect retiree benefits. See id. at ; In re Chateaugay Corp., 140 B.R. 64, 67 (Bankr. S.D.N.Y. 1992), vacated as moot, 153 B.R. 409 (Bankr. S.D.N.Y. 1993). In enacting Section 1114, Congress was aware that retirees are a particularly vulnerable group, who depend on their benefits yet often have no means to replace them if they are taken away. See 134 Cong. Rec. S6940 (daily ed. May 27, 1986) (statement of Sen. Heinz) ( While healthy retirees may find a replacement policy for a hefty monthly premium, sick retirees may be unable to find one at any price ). The statute gives effect to this policy through features that mirror those of Section See In re Ionosphere Clubs, Inc., 134 B.R. 515, 520 (Bankr. S.D.N.Y. 1991) ( [C]ompliance with 1114 is substantively and procedurally the same as compliance with 1113 ). Section 1114 imposes procedural and substantive requirements comparable to Section 1113: to obtain an order modifying retiree welfare benefits, a debtor must show that it has proposed necessary modifications to retiree benefits that are necessary to permit the reorganization of the debtor and that assure[ ] that all creditors, the debtor and all of the affected parties are treated fairly and equitably. 11 U.S.C (f)(1)(a), 1114(g). The Debtor must provide such relevant information as is necessary to evaluate the proposal. 11 U.S.C (f)(1)(b). Before granting a motion to modify retiree benefits, a court must find not only that the debtor bargained in good faith over its proposal, but that the union rejected it without good cause and that the balance of the equities clearly favors the modification of the

18 Main Document Page 18 of 29 benefits. 11 U.S.C. 1114(g)(2), (3). As with Section 1113, the burden of establishing compliance with each of the elements of Section 1114 rests with the debtor. See In re SPECO Corp., 195 B.R. 674, (Bankr. S.D. Ohio 1996). A. Walter Coke s Demand Concerning the Successor Provision of the CBA Is Not Necessary for Its Reorganization and USW Had Good Cause To Refuse to Agree To It Section 1113 requires that any modifications allowed by the court must be necessary to the reorganization of the debtor. See Carey Transp., 816 F.2d at 88. Thus, [b]ecause the employer has the burden of proving its proposals are necessary, the union is protected from an employer whose proposals may be offered in bad faith. Maxwell Newspapers, 981 F.2d at 90. Here, the Debtor contends that the relief sought is absolutely necessary for the Debtors to implement a going-concern sale of the Alabama Coal Operations[.] Section 1113/1114 Motion at 65. But the Debtor ignores the negotiations that are material to any motion for relief from collectively-bargained obligations to facilitate a sale, i.e., the negotiations between the union and the prospective purchase. See generally Maxwell Newspapers, supra (finding Section 1113 applies to asset sales and analyzing negotiations with prospective purchaser) (cited in Section 1113/1114 Motion at 64). Walter Coke s demand that United Steelworkers delete the successor language in the preamble to the CBA, which has been found by other courts to preclude a sale of assets where a debtor ignores its substance, 2 is 2 See In re Stein Henry Co., 1992 Bankr. LEXIS 2574 (Bankr. E.D. Pa. June 1, 1992). In Stein Henry, as here, the agreement provided that it shall be binding upon [the debtor s] successors and assigns. Id. at *2 (Bankr. E.D. Pa. June 1, 1992). The court in Stein Henry found that the failure of the sales agreement to provide for successor protection violated Section 1113(f) of the Code because the [r]ights provided in [a collective bargaining] agreement as to successor-entities must be preserved unless there is, unlike here, compliance with the procedures of 11 U.S.C and that [t]o be confirmed, the plan must satisfy all applicable Code requirements. Id. at *6, *

19 Main Document Page 19 of 29 hardly necessary to the Debtor s reorganization or its ability to consummate the APA with CA. That is because USW has not insisted on enforcing that provision of the CBA and has not demanded or proposed that Coal Acquisition assume the CBA. Rather, United Steelworkers has presented a contract proposal (the November 30 proposal) which does not require CA s assumption of the USW agreement with Walter Coke. Thus even assuming, as the Debtor contends, that the sale to the secured lenders is the only option that sells the Alabama Coal Operations as a going concern[,] (Section 1113/1114 Motion at 70), it does not need to delete the successorship protections of the CBA to achieve this end. Rather, the Debtor s proposal would only remove the successorship protections of the labor agreement at the very moment where these important protections are triggered. Section 1113 is intended to provide that collective bargaining negotiations be settled between the parties, not through judicial intervention. This case is analogous to this Court s decision in Bruno s Supermarkets. As here, the debtor sought rejection of a collective bargaining agreement that conditioned sale of the debtor s business on the purchaser s assumption of the terms of the contract. Bruno s Supermarkets, 2009 WL , at *2. The union proposed modifying that successorship provision to require that a purchaser reach an acceptable collective bargaining agreement as a condition of sale, rather than an assumption of the extant agreement. Id. at *3. Nonetheless, the debtor proceeded to seek rejection, presenting the opinion of its investment bankers that absent rejection no investors would be found for the assets. Id. at *8-9. The court concluded that the debtor failed to show that the union lacked good cause to reject the debtor s demands because prospective investors were prepared to proceed on the condition proposed by the union:

20 Main Document Page 20 of 29 the two offers Bruno s had at the time, both were willing to accept the now Union position that neither would be required to assume the current CBAs, but that they would negotiate with the Union later to reach a CBA. That is precisely the Union s current position and the proposal the Union offered to Bruno s when the Union refused Bruno s proposal. Therefore, while the Union s counterproposal may not be the total solution to these parties problems, it cannot be said that the Union refused Bruno s proposal without good cause[.] Id. at *18. 3 Here, the purchaser has conditioned its willingness to purchase the coke plant on the negotiation of a new labor agreement with USW. See APA 9.9(b) p. 85 ([Docket No. 993 at p. 198 of 233]) (providing that [p]rior to Closing the USW will have successfully ratified and executed an initial Collective Bargaining Agreement with Buyer, with all terms and conditions therein being acceptable to Buyer as determined by Buyer in its sole discretion[.] ). USW has at all times been willing to meet this condition as bargaining with Coal Acquisition is on-going and the Union has not insisted (or even proposed) that CA assume the CBA. The demand that United Steelworkers agree to remove the successor language from the agreement is not necessary to the proposed sale. Alternatively, as in Bruno s Supermarkets, under the circumstances presented here the Union has ample good and sufficient cause to reject Walter Coke s successorship demands because USW has offered a sufficient counter-proposal. See In re Bruno s Supermarkets, LLC, 2009 WL , at *18 (Bankr. N.D. Ala. April 27, 2009) ( When the Union attempted to compromise, it did what the law required it to do. That is what this Court has considered in determining the Union s good cause, not which proposal or counterproposal is better. ); Richard H. Gibson, The New Law on Rejection of Collective Bargaining Agreements 3 In Bruno s Supermarkets, where the relevant union was represented by counsel for USW here, a sale took place where the purchaser did reach a contract with the union

21 Main Document Page 21 of 29 in Chapter 11: An Analysis of 11 U.S.C. 1113, 58 Am. Bankr. L.J. 325, (1984). Here, USW has offered the prospective purchaser a collective bargaining agreement that would not require CA to assume the entirety of the CBA. 4 B. Walter Coke s Demand that USW Agree to the Termination of the Defined Benefit Pension Plan Should Be Denied Because the Debtor Has Failed to Provide the Union With Material Information Concerning the Effect of Plan Termination on Active and Retired Employees The Union has also appropriately responded to the Debtor s apparent demand that it agree to the termination of the defined benefit pension plan. It has requested information concerning how the termination would affect active and retired employees covered by the plan. Because the insurance provided by PBGC is limited, employees covered by a defined benefit plan which is underfunded may face material reductions in benefits accrued under the plan. See, e.g., In re US Airways, Inc., 296 B.R. 734 (Bankr. E.D. Va. 2003) (discussing standards for a distress termination under 29 U.S.C and financial consequences to plan participants of termination of an underfunded plan). This information is neither simple [nor] apparent for all to see. Section 1113/1114 Motion at 83. While it is clear that were CA to acquire the coke plant that it will not assume the defined benefit plan and that the plan will eventually be subject to termination, the USW s unwillingness to agree today to not oppose termination is entirely reasonable because Walter Coke has not provided the Union with material information concerning the effect of termination on active and retired employees, as it is required to do under Section 1113(b)(1)(B). 4 In this regard, the Debtor s contention that the APA requires elimination of the Successorship Provisions[,] Section 1113/1114 Motion 91, ignores that the APA provides that it may be satisfied if the USW shall have agreed to waive that contractual provision, APA 9.9(c) p. 85 ([Docket No. 993 at p. 198 of 233])

22 Main Document Page 22 of 29 Moreover, Walter Coke has yet to provide notice to plan participants of its intent to terminate the pension plan as it must do to affect a distress termination of the plan. Under the requirements for distress termination of a pension plan, the Debtor would have to issue a Notice of Intent to terminate the plan and propose a termination date no earlier than sixty days following the issuance of the notice. See 29 U.S.C. 1341(c)(1)(A). Since the Debtor has not yet taken this preliminary step, its demand of United Steelworkers is entirely premature. C. In Any Event, Walter Coke s Motion Should Be Denied Because the CBA Has Expired And Cannot Be Rejected Under Section 1113 There is an additional reason why Walter Coke s motion to reject the CBA should be denied: the labor agreement has expired. It is undisputed that the CBA expired on December 6. Indeed, the Debtor acknowledged that the labor agreement would expire on December 6 in response to USW s unconditional offer not to strike on expiration of that agreement. An expired labor agreement cannot be rejected under Section See In re Hostess Brands, Inc., 477 B.R. 378 (Bankr. S.D.N.Y. 2012); In re Chas. P. Young Company, 111 B.R. 410, 413 (Bankr. S.D.N.Y. 1990) ( Rejection of a collective bargaining agreement pursuant to 1113(b) and (c) is a moot issue if the agreement expires by its own terms and before the bankruptcy court has a hearing on rejection. ); see also In re San Rafael Baking Company, 219 B.R. 860, 866 & n.12 (9th Cir. BAP 1998). In Hostess Brands,, the court reviewed the few decisions to address the issue and granted the union s motion to dismiss a motion to reject collective bargaining agreements that had expired. As the Hostess Brands court explained, once a collective bargaining agreement expires the post-expiration regime is not one in which the collective bargaining agreement itself governs but rather the status quo obligation under the National Labor Relations Act, under which key provisions, but not all of the provisions, of the collective bargaining agreement

23 Main Document Page 23 of 29 [continue] in effect under the law pending bargaining to impasse. Id. at 379. Section 1113(a) provides that a debtor may assume or reject a collective bargaining agreement only in accordance with the provisions of this section. 11 U.S.C. 1113(a). Accordingly, as Judge Drain held in Hostess Brands, once the collective bargaining agreements expired, there was nothing for the court to reject, since this is as far as the plain language takes it in this section [1113][.] Id. at Because the CBA has expired, the Debtor s motion to reject it here should be denied. D. Walter Coke s Effort to Terminate Retiree Benefits Under Section 1114 Should Also Be Denied Section 1114 imposes procedural and substantive requirements comparable to Section 1113: to obtain an order modifying retiree welfare benefits, a debtor must show that it has proposed necessary modifications to retiree benefits that are necessary to permit the reorganization of the debtor and that assure[ ] that all creditors, the debtor and all of the affected parties are treated fairly and equitably. 11 U.S.C (f)(1)(a), 1114(g). The debtor must also provide such relevant information as is necessary to evaluate the proposal. 11 U.S.C (f)(1)(b). The debtor shall timely pay and shall not modify any retiree benefits except in compliance with the procedures of Section 1114, and [a]ny payment for retiree benefits required to be made before a plan confirmed under section is effective has the 5 The Hostess Brands court correctly determined not to follow two earlier cases reaching a contrary result, In re Karykeion, Inc., 435 B.R. 663 (Bankr. C.D. Cal. 2010), and In re Ormet Corp., 316 B.R. 662 (Bankr. S.D. Ohio 2004). As the Hostess Brands court noted that there is nothing in the language of Sections 1113(a)-(d) and (f), that Congress intended the words a collective bargaining agreement to include[e] the collective bargaining agreement [in effect] after its expiration. Hostess Brands, 377 B.R. at 381. For this reason, and given the importance of Section 1113 and its visibility and the visibility of the issues it relates to the Hostess Brands case declined to extend the reach of Section 1113, properly going only as far as the plain language takes it in this section. Id. 377 B.R. at

24 Main Document Page 24 of 29 status of an allowed administrative expense as provided in section See 11 U.S.C. 1114(e)(1), 1114(e)(2). Here, Walter Coke has demanded that USW agree to termination of retiree health benefits upon the sale with no agreement that claims of retirees for medical service before that date will be paid claims that Walter Coke is statutorily obligated to pay pursuant to Section 1114(c)(1). See Farrell Decl. Exhibit 1 (November 12 Proposal) p. 3 ( medical services incurred but not paid prior to such date shall not be paid). Thus, as the Debtor would have it, a retiree or surviving spouse who has paid premiums could have medical services performed today, or could have had services provided weeks or months ago but have not yet been reimbursed, all at a time when coverage was in effect, only to have the Debtor retroactively terminate coverage by failing to budget for the reimbursement of all claims. These services were obtained by retirees (many of whom paid premiums for coverage) in the knowledge that coverage was in effect, and yet find in several weeks time that what the Debtor promised years ago to pay based on past service was unpaid. This type of retroactive modification is contrary to law. See In re World Sales, Inc., 183 B.R. 872, 878 (B.A.P. 9th Cir. 1995) ( a CBA may not be rejected retroactively ); In re Hoffman Bros. Packing Co., 173 B.R. 177, 186 (B.A.P. 9th Cir. 1994) (Section 1113 provides for prospective, not retroactive relief ); In re Mile Hi Metal Systems, 51 B.R. 509 (Bankr. D. Colo. 1985), rev d on other grounds, 67 B.R. 114 (D. Colo. 1986), rev d on other grounds, 899 F.2d 887 (10th Cir. 1990). Such a modification is also based on a morally insupportable position and would treat retirees differently from, say, members of the Debtor s management team who would benefit from a newly-minted Key Employee Retention Plan paying bonuses up to 100% of yearly compensation aggregating to $2 million, were this Court to permit it. See Debtors Motion for an

25 Main Document Page 25 of 29 Order (A) Approving the Debtors Key Employee Retention Plan and (B) Granting Related Relief [Docket No. 1032] 14, 24, 42. The Debtor does not discuss this aspect of the fairness of its proposals, see Section 1113/1114 Motion at 74-76, but inequitable treatment alone is sufficient to deny relief under Section 1113 and by extension Section See Ass n of Flight Attendants v. Mesaba Aviation, Inc., 350 B.R. 435, (D. Minn. 2006) (reversing bankruptcy court s granting of Section 1113 relief because court failed to consider how the owner of the debtor regional airline might share the burdens of reorganization ); In re Lady H. Coal Co., Inc., 193 B.R. 233, 242 (Bankr. S.D. W.Va. 1996) (denying Section 1113 motion because of inequities between officers compensation and treatment of employees, even in face of possible shut down of facility ); In re Jefley, Inc., 219 B.R. 88, (Bankr. E.D. Pa. 1998) (continued receipt by debtor s principals of high salaries prevented court from concluding that proposal was fair and equitable to union employees); In re Indiana Grocery Co., 136 B.R. 182, (Bankr. S.D. Ind. 1990) (denying rejection motion because top management took no reduction in salaries and received bonuses while at the same time sought to reject CBA). Recognizing that one way or the other Walter Coke will cease operations, USW has proposed that claims for services through the closing of the sale be paid. That is good cause to reject the Debtor s inequitable demands. The Debtor s request for relief under Section 1114 should be denied