Case KRH Doc 797 Filed 11/03/15 Entered 11/03/15 16:16:06 Desc Main Document Page 1 of 29

Transcription

1 Document Page 1 of 29 JONES DAY North Point 901 Lakeside Avenue Cleveland, Ohio Telephone: (216) Facsimile: (216) David G. Heiman (admitted pro hac vice) Carl E. Black (admitted pro hac vice) Thomas A. Wilson (admitted pro hac vice) Attorneys for Debtors and Debtors in Possession HUNTON & WILLIAMS LLP Riverfront Plaza, East Tower 951 East Byrd Street Richmond, Virginia Telephone: (804) Facsimile: (804) Tyler P. Brown (VSB No ) J.R. Smith (VSB No ) Henry P. (Toby) Long, III (VSB No ) Justin F. Paget (VSB No ) IN THE UNITED STATES BANKRUPTCY COURT FOR THE EASTERN DISTRICT OF VIRGINIA RICHMOND DIVISION In re: Alpha Natural Resources, Inc., et al., Debtors. Chapter 11 Case No (KRH) (Jointly Administered) MOTION OF THE DEBTORS, PURSUANT TO SECTION 363 OF THE BANKRUPTCY CODE, FOR AN ORDER AUTHORIZING DEBTORS TO TERMINATE CERTAIN UNVESTED NON-PENSION BENEFITS Alpha Natural Resources, Inc. ("ANR") and certain of its direct and indirect subsidiaries, as debtors and debtors in possession (collectively, the "Debtors"), respectfully represent as follows: Background 1. On August 3, 2015 (the "Petition Date"), the Debtors commenced their reorganization cases by filing voluntary petitions for relief under chapter 11 of title 11 of the United States Code (the "Bankruptcy Code"). By order of the Court (Docket No. 129), the Debtors' chapter 11 cases have been consolidated for procedural purposes only and are being jointly administered. The Debtors are authorized to continue to operate their business and

2 Document Page 2 of 29 manage their properties as debtors in possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. 2. A comprehensive description of the Debtors' businesses and operations, capital structure and the events leading to the commencement of these chapter 11 cases can be found in the amended declarations of (a) Kevin S. Crutchfield, Chief Executive Officer and Chairman of the Board of Directors of ANR (Docket No. 45), and (b) Philip J. Cavatoni, Executive Vice President and Chief Financial and Strategy Officer of ANR (Docket No. 46), each of which was filed on the Petition Date. Jurisdiction 3. This Court has subject matter jurisdiction to consider this matter pursuant to 28 U.S.C. 157 and This is a core proceeding pursuant to 28 U.S.C. 157(b). Venue is proper before this Court pursuant to 28 U.S.C and Relief Requested 4. Pursuant to section 363 of the Bankruptcy Code, and in accordance with the express language of certain underlying agreements and the Employee Retirement Income Security Act, 29 U.S.C. 1001, et seq. ("ERISA"), the Debtors hereby seek the entry of an order authorizing the Debtors to terminate, effective as of December 31, 2015 (the "Termination Date"), 1 certain unvested, non-pension welfare benefits (e.g., hospital, medical, prescription, 1 In addition to promoting efficiency of internal administration, the Debtors have selected December 31, 2015 as the Termination Date to allow Non-Union Retirees (as such term is defined below) to (a) make appropriate elections with respect to their continuing medical coverage as of January 1, 2016 while the relevant election period is still open and (b) transition seamlessly from current benefits to any such newly-elected coverage in place on such date. -2-

3 Document Page 3 of 29 surgical and life insurance) (collectively, the "Non-Pension Retiree Benefits") currently offered to certain of the Debtors' non-union retirees (collectively, the "Non-Union Retirees"). 2 Preliminary Statement 5. As described more fully below and in the Declaration of Judy Tweed Hill filed in support of this Motion (the "Hill Declaration"), 3 the Non-Pension Retiree Benefits currently offered by the Debtors represent a financial burden on the Debtors' chapter 11 estates, costing the Debtors approximately $2.7 million in 2014 (for payments made to or on behalf of Non-Union Retirees) and representing an approximately $125 million liability on the Debtors' balance sheets (for future payments expected to be made to or on behalf of Non-Union Retirees and eligible Non-Union Active Employees). 4 For the nine months ending September 30, 2015, the Debtors have paid approximately $2.8 million in Non-Pension Retiree Benefits to or on behalf of Non-Union Retirees. 6. As set forth in detail below, under applicable contract and non-bankruptcy law, the Debtors possess the unilateral right to terminate the Non-Pension Retiree Benefits because welfare benefits, such as those provided under a health benefit plan, generally are not References herein to Non-Union Retirees receiving Non-Pension Retiree Benefits includes others receiving those benefits, such as the eligible spouses of such retirees, surviving spouses of deceased retirees, eligible dependents of such retirees, and certain employees who retired due to a disability. To the extent that they may satisfy the eligibility requirements to receive Non-Pension Retiree Benefits at some point in the future, the Debtors' current non-union active employees (collectively, the "Non-Union Active Employees") may have some contingent expectation of medical benefit coverage upon retirement. The Debtors believe that, for the same reasons described herein with respect to the Non-Union Retirees, they are authorized to terminate these contingent expectation interests (which do not fall within the ambit of section 1114 of the Bankruptcy Code) in the ordinary course of business and thus seek no relief herein with respect to the Non-Union Active Employees. A copy of the Hill Declaration is attached hereto as Exhibit B and incorporated herein by reference. Non-Union Active Employees do not receive benefits until they retire (and satisfy other eligibility criteria). Accordingly, their potential retirement benefits do not impact the Debtors' current cash flow, but the Debtors' accumulated post-retirement benefit obligation ("APBO") must account for such potential benefits. See Hill Decl., at

4 Document Page 4 of 29 vested, and an employer can choose to amend or terminate such benefits at any time. In the Debtors' case, none of the plans governing Non-Pension Retiree Benefits addressed by this Motion (collectively, the "Non-Union Benefit Plans") 5 contains "clear and express" language purporting to vest Non-Pension Retiree Benefits and (b) all of such plans expressly reserve the unilateral right of the Debtors to modify or terminate the plans and/or benefits at any time. As such, under applicable contract and non-bankruptcy law, the Non-Pension Retiree Benefits are not vested, and such plans and/or benefits can be terminated immediately by the Debtors. 7. Moreover, termination of the Non-Pension Retiree Benefits does not require approval under and is not subject to the procedures otherwise mandated by section 1114 of the Bankruptcy Code because (a) neither the language of nor the legislative history behind section 1114 of the Bankruptcy Code evidence any intent by Congress to create or enhance the rights of retirees beyond what they would possess outside of bankruptcy and (b) applying such a requirement to increase the Debtors' financial burden in bankruptcy would be contrary to the fundamental purposes and policies underlying chapter Accordingly, the Debtors have determined, in a reasonable and sound exercise of their business judgment, that termination of unvested Non-Pension Retiree Benefits as to their Non-Union Retirees under the Non-Union Benefit Plans, effective as of the Termination Date, is desirable and in the best interests of their estates. Such termination will immediately allow the Debtors to (a) conserve approximately $3 million per year, (b) eliminate an approximately $125 million obligation from their consolidated balance sheet and (c) enhance the Debtors' prospects of a successful reorganization. 5 Attached as Exhibit A to the Hill Declaration is a chart identifying all of the various Non-Union Benefits Plans, as well as the number of Non-Union Retirees and Non-Union Active Employees covered by or eligible for future benefits under each plan. -4-

5 Document Page 5 of 29 Facts Relevant to This Motion The Debtors' Non-Pension Retiree Benefits Obligations 9. The Debtors offer Non-Pension Retiree Benefits mainly pursuant to the Alpha Natural Resources, LLC and Affiliates Welfare Benefit Plan (the "Welfare Benefit Plan"), as restated effective January 1, 2011 and thereafter amended. Hill Decl. at 4. 6 The Welfare Benefit Plan governs the provision of welfare benefits to both active and retired employees of participating employers and encompasses (i.e., serves as the plan document for) several component benefit programs and plans (any such program or plan, a "Component Benefit Program"). Hill Decl. at The major Component Benefit Programs are: (a) the Alpha Natural Resources, LLC and Affiliates Retiree Medical Plan (the "Retiree Medical Plan"); (b) the Alpha Natural Resources, LLC and Affiliates Limited Health Reimbursement Arrangement (the "Limited HRA Plan" and together with the Retiree Medical Plan, the "Alpha Retiree Medical Plans"); (c) the Life and Accidental Death and Dismemberment Benefit Plan for union-free Alpha Natural Resources retirees, Disabled Foundation Coal, and Disabled Legacy Massey Employees (the "Union-Free Insurance Plan"); and (d) the Life and Accidental Death and Dismemberment Benefit Plan for Former Salaried Executive Employees covered under the KESP Agreement, Alpha Natural Resources Salaried Retirees, Disabled Foundation Coal and Disabled Legacy Massey Salaried Employees (the "Salaried Employees Insurance Plan" and together with the Union-Free Insurance Plan, the "Life Insurance Plans"). Each Component Benefit Program is more particularly described in a discrete Summary Plan Description ("SPD") 6 Prior to January 1, 2011, the Welfare Benefit Plan was known as the "Alpha Natural Resources, LLC Welfare Benefits Plan". Hill Decl. at note

6 Document Page 6 of 29 attached to the Welfare Benefit Plan. 7 Hill Decl. at 6. As of October 1, 2015, approximately 4,580 Non-Union Retirees (and eligible spouses), disabled retirees, and surviving spouses were participants in the major Component Benefit Programs listed in this paragraph. Hill Decl. at Non-Pension Retiree Benefits are not pre-funded or set aside in a trust by the Debtors. Rather, with the exception of the Life Insurance Plans, the cost of providing Non- Pension Retiree Benefits are paid out of the Debtors' general revenue as the current obligations arise. Hill Decl. at 9, 15. With respect to the Life Insurance Plans, the Debtors pay $227,800 in annual premiums to Prudential out of general revenues and any benefits are paid by Prudential. Id. 12. Generally, the Non-Pension Retiree Benefits provided by the Debtors consist of subsidies to the Non-Union Retirees (such subsidies, the "Retiree Medical Subsidies") to reimburse them for their purchase of medical benefit coverage through healthcare exchanges. Hill Decl. at 11. The Debtors account for these subsidies pursuant to the Alpha Retiree Medical Plans through health reimbursement arrangements ("HRAs") i.e., unfunded notional accounts established for each eligible Non-Union Retiree. Hill Decl. at 11. The subsidies payable to Non-Union Retirees differ depending on the applicable retiree's Medicare eligibility, length of service with the Debtors and, for certain Non-Union Retirees, whether they previously worked for a company that was acquired by the Debtors (such retirees, the "Acquired Non-Union Retirees"). Hill Decl. at The Debtors have provided the Non-Union Retirees with a copy of the SPDs for the Retiree Medical Plan and the Limited HRA Plan. Copies of the Welfare Benefit Plan are (and have been) available to Non-Union Retirees upon request. Hill Decl. at

7 Document Page 7 of As set forth in Table 1 below, for Non-Union Retirees who are not yet Medicare eligible and are not Acquired Non-Union Retirees, the Debtors generally provide a subsidy of (a) $10.00 per year of service per month for retirees who achieved 10 to 19 years of service and (b) $15.00 per year of service per month for retirees who achieved at least 20 years of service. For Non-Union Retirees who are Medicare eligible but are not Acquired Non-Union Retirees, the Debtors provide a subsidy of $2.90 per year of service per month for 2015 (decreasing annually to $0.00 in 2020). In each case, the Debtors also provide an equivalent subsidy for the eligible spouse of the Non-Union Retiree based upon the retiree's years of service. Hill Decl. at 12. TABLE NON-MEDICARE ELIGIBLE (MONTHLY SUBSIDY) 2015 MEDICARE-ELIGIBLE (MONTHLY SUBSIDY) Retiree with years of service $10 for each year of service $2.90 for each year of service Retiree with 20+ years of service $15 for each year of service $2.90 for each year of service Spouse $10 or $15 for each year of the retiree's service $2.90 for each year of the retiree's service 14. In addition to the subsidies set forth above, (a) approximately 63 Acquired Non-Union Retirees who worked for Foundation Coal Corporation prior to its acquisition by the Debtors receive subsidies of either $823 per month or $3,700 annually, depending on the welfare -7-

8 Document Page 8 of 29 benefit plan in which they previously participated (Hill Decl. at 13); and (b) approximately 420 Acquired Non-Union Retirees who worked for Massey Energy Corporation prior to its acquisition by the Debtors receive a monthly subsidy of $81.66 (Hill Decl. at 13). 15. In addition to the Alpha Retiree Medical Plans and the Life Insurance Plans, the Debtors also have miscellaneous other legacy healthcare obligations to certain Non-Union Retirees (collectively, the "Other Legacy Welfare Obligations") that arise from various corporate mergers, including: (a) welfare and severance benefits payable to seven key employees pursuant to the Alpha Natural Resources, Inc. Key Employee Separation Plan (the "Key Employee Plan") (see Hill Decl., Ex. G); (b) welfare benefits (medical (including prescription), dental and vision) payable to 53 former employees of Massey Energy Coal Company who were determined to be totally and permanently disabled as of December 31, 2011 (such benefits, collectively, the "Massey Legacy Benefits"); and (c) welfare benefits (medical, dental, and vision) payable to 18 former employees of Foundation Coal Company who were determined to be totally and permanently disabled as of July 31, 2009 (such benefits, collectively, "Foundation Coal Legacy Benefits"). See Hill Decl. at Similar to the major Component Benefit Programs described above, the Massey Legacy Benefits are governed by, and are Component Benefit Programs of, the Welfare Benefit Plan and each component is described in a discrete SPD. The Massey Legacy Benefit component plans are: (a) the Medical Plan for Disabled Participants in the A.T. Massey Energy Coal Company Comprehensive Benefits Plan (the "Massey Medical Plan") (see Hill Decl., Ex. H); (b) the Dental Plan for Disabled Participants in the A.T. Massey Energy Coal Company Comprehensive Benefits Plan (the "Massey Dental Plan") (see Hill Decl., Ex. I); and (c) the -8-

9 Document Page 9 of 29 Vision Plan for Disabled Participants in the A.T. Massey Energy Coal Company Comprehensive Benefits Plan (the "Massey Vision Plan") (see Hill Decl., Ex. J). See Hill Decl. at All of the plans described above constitute "employee welfare benefit plans" within the meaning of ERISA. See 11 U.S.C. 1002(1) (defining "employee welfare benefit plan" as any plan providing "medical, surgical, or hospital care or benefits, or benefits in the event of sickness"). Provisions of the Relevant Documents 18. Significantly, none of the Non-Union Benefit Plan documents identified in the Hill Declaration contains any express statement providing for the vesting of Non-Pension Retiree Benefits. To the contrary, all such documents contain language explicitly preserving the Debtors' right to modify or terminate the Non-Union Benefit Plans and the Non-Pension Retiree Benefits. 19. For example, the Welfare Benefit Plan which, as noted above, governs the various Component Benefit Programs (including the Massey Legacy Benefits) expressly reserves the right of its sponsor Alpha Natural Resources, LLC to amend or terminate the Welfare Benefit Plan or any of the associated Component Benefit Programs "at any time for any reason." Hill Decl. at Ex. B. (Welfare Benefit Plan, Section IX). 20. Specifically, the Welfare Benefit Plan states: Id. Alpha Natural Resources, LLC retains the authority, in its sole discretion, to terminate or amend the [Welfare Benefit] Plan and/or any of its component benefit programs at any time for any reason by action of its Board of Managers, benefits committee or any other person(s) to whom its Board of Managers delegates such authority. 21. Each SPD issued in connection with a Component Benefit Program contains an essentially identical reservation of rights. For example, the SPD for the Retiree -9-

10 Document Page 10 of 29 Medical Plan provides that "Alpha Natural Resources, LLC reserves the right to amend, modify, suspend or terminate the [Retiree Medical] Plan, in whole or in part, for any reason and at any time, in its sole discretion." Hill Decl., at Ex. C (Retiree Medical Plan SPD), p The Limited HRA Plan SPD and the Life Insurance Plans SPDs contain identical termination rights. See Hill Decl., at Ex. D (Limited HRA Plan SPD), p. 11 ("Alpha Natural Resources, LLC reserves the right to amend, modify, suspend or terminate the [Limited HRA] Plan, in whole or in part, for any reason and at any time, in its sole discretion."); Hill Decl., at Ex. E (Union-Free Insurance Plan SPD), p. 30 (same language); Hill Decl., at Ex. F (Salaried Employees Insurance Plan SPD), p. 29 (same language); Hill Decl., at Ex. H (Massey Medical Plan), p. 67 (same language); and Hill Decl., at Ex. I (Massey Dental Plan), p. 39 (same language). 8 The Key Employee Plan contains similar rights to terminate. See Hill Decl. at Ex. G (Key Employee Plan), p. 12 ("[T]he Committee shall have the right in its discretion at any time to amend the [Key Employee] Plan in any respect or to terminate the [Key Employee] Plan prior to a Change in Control."). Argument 23. As set forth below, the Debtors believe that they are authorized to terminate the Non-Pension Retiree Benefits in the ordinary course of their business pursuant to section 363(c) of the Bankruptcy Code and the relevant provisions of ERISA. Nevertheless, out of an abundance of caution, in the event that the proposed termination of Non-Pension Retiree Benefits is found to be outside the ordinary course of the Debtors' business, the Debtors alternatively request authority to terminate pursuant to section 363(b) of the Bankruptcy Code. 8 Although the SPD for the Massey Vision Plan does not contain language expressly preserving the Debtors' right to modify and terminate benefits thereunder, the governing plan document for the Massey Vision Plan (i.e., the Welfare Benefit Plan), which is controlling, does contain such language. See Hill Decl. at Ex. B. (Welfare Benefit Plan, Section IX). -10-

11 Document Page 11 of 29 The Debtors Are Authorized to Terminate the Non-Pension Retiree Benefits in the Ordinary Course of Business Pursuant to Section 363(c) of the Bankruptcy Code 24. Section 363(c) of the Bankruptcy Code provides, in relevant part, that a debtor in possession "may enter into transactions in the ordinary course of business without notice or a hearing, and may use property of the estate in the ordinary course of business without notice or a hearing." 11 U.S.C. 363(c)(1). Section 363 is designed to serve the "'overriding goal of maximizing the value of the estate' by striking the optimal balance between the interests of the debtor and the creditors." Habinger, Inc. v. Metropolitan Cosmetic and Reconstructive Surgical Clinic, P.A., 124 B.R. 784, 786 (Bankr. D. Minn. 1990) (quoting United States ex rel. Harrison v. Estate of Deutscher, 115 B.R. 592 (Bankr. M.D. Tenn. 1990)). "The framework of section 363 is designed to allow a trustee (or debtor-in-possession) the flexibility to engage in ordinary transactions without unnecessary creditor and bankruptcy court oversight, while protecting creditors by giving them an opportunity to be heard when transactions are not ordinary." In re Roth Am., Inc., 975 F.2d 949, 952 (3d Cir. 1992); see also Habinger, 124 B.R. at 786 ("The ordinary course of business' standard is intended to allow a debtor the flexibility it needs to run its business and respond quickly to changes in the business climate."). 25. The Bankruptcy Code does not define "ordinary course of business." However, "through a synthesis of case law, courts have developed a workable analytical framework for determining whether an activity is within the debtor's 'ordinary course of business.'" In re Husting Land & Dev., Inc., 255 B.R. 772, 778 (Bankr. D. Utah 2000), aff'd, 274 B.R. 906 (D. Utah 2002); Comm. of Asbestos Related Litigants and/or Creditors v. Johns-Manville Corp. (In re Johns-Manville Corp.), 60 B.R. 612, 616 (Bankr. S.D.N.Y. 1986), rev'd on other grounds, 801 F.2d 60 (2d Cir. 1986). "Courts have developed two commonly used joint tests for determining whether a transaction is in the ordinary course of business: -11-

12 Document Page 12 of 29 (1) the horizontal dimension test; and (2) the vertical dimension (also known as the reasonable expectations) test." 3 Collier on Bankruptcy (Alan N. Resnick & Henry J. Sommer eds., 16th ed. 2015); see also Burlington N. RR Co. v. Dant & Russell, Inc. (In re Dant & Russell, Inc.), 853 F.2d 700, 704 (9th Cir. 1988) ("Two tests emerge[d] to aid in assessing whether [postpetition transactions are] executed in the ordinary course of business: (1) vertical dimension or creditor's expectation test and (2) horizontal dimension test."). 26. The horizontal dimension test involves a determination of "whether the postpetition transaction is of a type that other similar businesses would engage in as ordinary business." Dant & Russell, 853 F.2d at 704 (citing Johnston v. First Street Cos. (In re Waterfront Cos.), 56 B.R. 31, (D. Minn. 1985) and Johns-Manville, 60 B.R. at 618). Under the horizontal test, "[t]he transaction need not have been common; it need only be ordinary. A transaction can be ordinary and still occur only occasionally." Dant & Russell, 853 F.2d at 704 (quoting Waterfront, 56 B.R. at 34-35). "The touchstone of 'ordinariness'" under the vertical, or reasonable expectations, test "is the interested parties' reasonable expectations of what transactions the debtor in possession is likely to enter in the course of its business. So long as the transactions conducted are consistent with these expectations, creditors have no right to notice and hearing." Armstrong World Indus., Inc. v. James A. Phillips, Inc. (In re James A. Phillips, Inc.), 29 B.R. 391, 394 (Bankr. S.D.N.Y. 1983). 27. The Debtors' proposed termination of Non-Pension Retiree Benefits satisfies both the horizontal and vertical/reasonable expectations tests and is thus authorized by section 363(c) of the Bankruptcy Code. With respect to the horizontal test, the modification and/or termination of retiree benefit plans which practice (as set forth below) is expressly permitted by ERISA for the precise purpose of providing business concerns with necessary -12-

13 Document Page 13 of 29 flexibility with respect to such plans (see note 9 below) and is a common practice for companies within various industries, including the coal industry; e.g., the now-familiar transition of the responsibility for retiree benefits from employers to voluntary employee benefits associations ("VEBAs"). See Int'l Union, United Auto., Aerospace, & Agr. Implement Workers of Am. v. Chrysler LLC, No. 07-CV-14310, 2008 WL , at *8 (E.D. Mich. July 31, 2008) (stating that the purpose of establishing a VEBA to take over Chrysler's health care obligations to certain retirees was "to mitigate the adverse impact that further deterioration in Chrysler's financial position and credit quality could have on its ability to meet its obligations with respect to post-retirement health care to [such] retirees"); In re Patriot Coal Corp., No (Docket No. 3849) (Bankr. E.D. Mo. Apr. 26, 2013) (order granting motion to modify and terminate unvested retiree benefits). Although not an everyday occurrence, the modification and/or termination of retiree benefits nevertheless is sufficiently commonplace across a wide range of industries both inside and outside of bankruptcy to be deemed "ordinary" within the meaning of the horizontal inquiry. 28. Moreover, because the termination of Non-Pension Retiree Benefits proposed herein is well within the reasonable expectations of creditors including, notably, the Non-Union Retirees such termination satisfies the vertical, or reasonable expectations, test as well. In addition to the right to terminate and/or modify being expressly preserved under ERISA, the Debtors have the contractual right to implement such benefit changes. In particular, (a) all of the Retiree Benefit Plans subject to this Motion expressly preserve the Debtors' right to modify and/or terminate and (b) the Debtors have provided the Non-Union Retirees with copies of the SPDs for the Retiree Medical Plan and the Limited HRA Plan (and copies of the Welfare Benefit Plan are, and have been, available upon request). See Hill Decl. at 8. Moreover, the Debtors -13-

14 Document Page 14 of 29 have previously modified the Retiree Benefit Plans on numerous occasions in the ordinary course of their business, thus putting Non-Union Retirees on further notice of the possibility of future modifications or termination. See id. 29. The relief sought herein, therefore, satisfies both the horizontal and vertical (or reasonable expectations) tests, and the Debtors are authorized by section 363(c) of the Bankruptcy Code to implement the termination of the Non-Pension Retiree Benefits, without further notice and a hearing, because such actions are in the ordinary course of the Debtors' business. The Non-Union Plans Permit the Debtors to Terminate or Modify Non-Pension Retiree Benefits 30. "It is well-established that ERISA does not prohibit a company from terminating or modifying previously offered benefits that are not vested." Gable v. Sweetheart Cup Co., 35 F.3d 851, 855 (4th Cir. 1994) (citing 29 U.S.C. 1051(1), expressly exempting employee welfare benefits from vesting requirements applicable to pension benefits). Unlike pension benefits, "ERISA does not create any substantive entitlement to employer-provided health benefits or any other kind of welfare benefits." In re LandAmerica Fin. Grp., Inc., No (KRH), 2011 WL , at *3 (Bankr. E.D. Va. Oct. 28, 2011) (quoting Curtiss-Wright Corp. v. Schoonejongen, 514 U.S. 73, 78 (1995)) "Welfare benefit plans plans that provide medical, surgical or hospital care or benefits, or benefits in the event of sickness, accident, disability, death or unemployment are not subject to the strict vesting requirements of ERISA pension benefit plans" and "[e]mployers are generally free for any reason at any time, to adopt, modify, or terminate welfare 9 In enacting ERISA, Congress recognized the need for allowing plan sponsors the "flexibility" to reject welfare benefits. "Automatic vesting was rejected because the costs of such plans are subject to fluctuating and unpredictable variables." Moore v. Metro. Life Ins. Co., 856 F.2d 488, 492 (2d Cir. 1988). -14-

15 Document Page 15 of 29 plans." LandAmerica, 2011 WL , at *3 (quoting Senior v. Nstar Electric & Gas Corp., 449 F.3d 206, 207 (1st Cir. 2005) (citations omitted)); Gable, 35 F.3d at 855 (4th Cir. 1994) ("[A] plan participant's interest in welfare benefits is not automatically vested, and employers have a statutory right to 'amend the terms of the plan or terminate it entirely.'") (quoting Biggers v. Wittek Indus., Inc., 4 F.3d 291, 295 (4th Cir. 1993)); Curtiss-Wright, 514 U.S. at 78 ("Employers or other plan sponsors are generally free under ERISA, for any reason at any time, to adopt, modify, or terminate welfare plans."); Joyce v. Curtiss-Wright Corp., 171 F.3d 130, 133 (2d Cir. 1999) (observing that the "general rule under ERISA is that an employee welfare benefit plan is not vested and that an employer has the right to terminate or unilaterally to amend the plan at any time") (quotation omitted). 32. "An employer may waive its statutory right to modify or terminate benefits by voluntarily undertaking an obligation to provide vested, unalterable benefits." Gable, 35 F.3d at 855. "Because such an obligation constitutes an extra ERISA commitment, however, courts may not lightly infer the existence of an agreement to vest employee welfare benefits." Id.; see also Sprague v. Gen. Motors Corp., 133 F.3d 388, 400 (6th Cir. 1998) (finding that a commitment to vest is "not to be inferred lightly."); Int'l Union, UAW v. Skinner Engine Co., 188 F.3d 130, 139 (3d Cir. 1999) (same) (citing cases); Joyce, 171 F.3d at 135 (finding that a commitment to vest welfare benefits should not be based on "blind application of common law contract doctrines."). Rather, any waiver "must be stated in clear and express language" in the plan documents, and an "express reservation of the company's right to modify or terminate the participants' benefits is plainly inconsistent with any alleged intent to vest those benefits." Id. at (citing Anderson v. Alpha Portland Indus., Inc., 836 F.2d 1512, 1519 (8th Cir. 1988); see also Joyce, 171 F.3d at 136 (the presence of a "reservation of rights" clause confirming that a -15-

16 Document Page 16 of 29 plan sponsor reserves the right to "end or amend" the plan "precludes any viable claim" that the plan vests retiree benefits). 33. Parties attempting to establish a fixed level of lifetime benefits bear the burden of proving that "their employer's ERISA plan contains a promise to provide vested benefits." Gable, 35 F.3d at 855; see also Senior, 449 F.3d at 216 ("The retirees bear the burden of proving that their welfare plan benefits are vested and cannot be changed by the company."); Joyce, 171 F.3d at (the party claiming lifetime benefits has the burden to identify plan language that establishes vesting, not through some "extensive linguistic contortion," but in language that "affirmatively operates to create the promise of vesting.") Even where an arguable promise of lifetime benefits is otherwise present, if the plan documents also reserve the plan sponsor's right to amend or terminate coverage, such a reservation will control: Because the same document that potentially provided the "lifetime" benefits also clearly informed employees that these benefits were subject to modification, we conclude that the language contained in the [plan document] is not susceptible to an interpretation that promises vested lifetime life insurance benefits. Abbruscato v. Empire Blue Cross & Blue Shield, 274 F.3d 90, 99 (2d Cir. 2001) (affirming grant of summary judgment); In re Unisys Corp. Retiree Med. Benefit "ERISA" Litig., 58 F.3d 896, (3d Cir. 1995) (reservation of right to terminate or modify benefits bars claim that benefits are vested; "An employer who promises lifetime medical benefits, while at the same time reserving the right to amend the plan under which those benefits were provided, has 10 Neither can retirees or employees rely on informal communications between plan administrators and plan participants as purported promises of lifetime benefits. See Gable, 35 F.3d at 857 (stating that "informal communications do not govern the company's obligations under an ERISA plan"; citing 29 U.S.C. 1102(b)(3) (prohibiting informal written or oral amendments of employee benefit plans)); see also Moore, 856 F.2d at 492 ("absent a showing tantamount to a proof of fraud," plan language is "not subject to amendment as a result of informal communications between an employer and plan beneficiaries."). -16-

17 Document Page 17 of 29 informed plan participants of the time period during which they will be eligible to receive benefits provided the plan continues to exist.") (emphasis added). 35. Here, as set forth at paragraphs 18 to 22 above, each of the Debtors' plans under which Non-Union Retirees receive Non-Pension Retiree Benefits contains an express reservation of rights permitting the Debtors to unilaterally terminate or modify such benefits for the Debtors' Non-Union Retirees. Those reservation of rights clauses are clear and unambiguous and preclude the vesting of benefits. See Gable, 35 F.3d at ; LandAmerica, 2011 WL , at *3. Moreover, none of those plans contains any unambiguous language that creates vested benefits. Absent such clear language, ERISA provides that the benefits are not vested. Accordingly, the Debtors have the unilateral right to terminate these benefits in the reasonable exercise of their business judgment. The Debtors Are Authorized to Terminate the Non-Pension Retiree Benefits Pursuant to Section 363(b) of the Bankruptcy Code 36. Even if the proposed termination of Non-Pension Retiree Benefits is deemed a transaction outside the ordinary course of business (which, as set forth above, it should not be), such termination nevertheless should be authorized pursuant to section 363(b) of the Bankruptcy Code as a reasonable exercise of the Debtors' business judgment. 37. Section 363(b) of the Bankruptcy Code provides, in relevant part, that a debtor in possession, "after notice and a hearing, may use, sell, or lease, other than in the ordinary course of business, property of the estate." 11 U.S.C. 363(b)(1). Although section 363 of the Bankruptcy Code does not specify a standard for determining when it is appropriate for a court to authorize the use of property of the estate outside the ordinary course of business, bankruptcy courts routinely authorize proposed uses if they are based upon the sound business judgment of the debtor. See In re Glover, No , 2010 WL , at *3 (Bankr. E.D. -17-

18 Document Page 18 of 29 Va. Mar. 31, 2010) (stating that the use, sale or lease of estate property pursuant to section 363(b)(1) of the Bankruptcy Code is permitted where "a 'sound business purpose' exists" therefor) (citations omitted); In re W.A. Mallory Co., 214 B.R. 834, 836 (Bankr. E.D. Va. 1997) (same); see also Comm. of Equity Sec. Holders v. Lionel Corp. (In re Lionel Corp.), 722 F.2d 1063, 1069 (2d Cir. 1983) (noting that "[s]ection 363(b) of the [Bankruptcy] Code seems on its face to confer upon the bankruptcy judge virtually unfettered discretion to authorize the use, sale or lease, other than in the ordinary course of business, of property of the estate"; approving sale of assets where a "good business reason" existed to justify the sale). 38. Courts generally will accord significant deference to a debtor's business judgment to use, sell or lease assets outside the ordinary course of business. See W.A. Mallory Co., 214 B.R. at ("[G]reat deference is given to a business in determining its own best interests."); see also In re Global Crossing Ltd., 295 B.R. 726, 744 n.58 (Bankr. S.D.N.Y. 2003) ("[T]he Court does not believe that it is appropriate for a bankruptcy court to substitute its own business judgment for that of the Debtors and their advisors, so long as they have satisfied the requirements articulated in the case law.") 39. The Debtors' determination to exercise their rights to terminate the Non-Pension Retiree Benefits can be and, if necessary, should be approved under section 363(b) of the Bankruptcy Code. See In re Delphi Corp., No , 2009 WL , at *9 (Bankr. S.D.N.Y. Mar. 10, 2009) (applying standards of section 363 of the Bankruptcy Code to decision to terminate retiree benefits); In re N. Am. Royalties, 276 B.R. 860, 866 (Bankr. E.D. Tenn. 2002) (noting that section 363 of the Bankruptcy Code "may be more appropriate" to review of termination/modification decisions, where section 1114 does not apply)). -18-

19 Document Page 19 of The relevant standard is clearly met in this instance. Reductions in the Debtors' Non-Union Retiree legacy obligations will promote the Debtors' ability to successfully restructure through the improvement of their competitive margins and cash flow. See, e.g., Delphi, 2009 WL , at *9 (finding that the termination of welfare benefits was "well within [the debtors'] business judgment" where the (a) the debtors needed to conserve cash in order to reorganize and (b) the debtors' industry was in the midst of "enormous adverse changes"). By contrast, maintaining these benefits will continue to burden the Debtors with liabilities and expenses that they no longer can afford. For these reasons, and because the Non-Pension Retiree Benefits have not vested and remain subject to the Debtors' unilateral contractual right to terminate, the Debtors' decision to terminate the Non-Pension Retiree Benefits is well within their sound business judgment and should be authorized by the Court to the extent such authorization is needed. The Debtors May Terminate Unvested Non-Pension Retiree Benefits Without Resort to the Section 1114 Process 41. The majority of courts to have addressed the issue hold that a debtor is not required to comply with the procedural and substantive requirements of section 1114 of the Bankruptcy Code prior to exercising its contractual rights to terminate non-vested welfare benefits pursuant to non-bankruptcy law. See Retired W. Union Employees Ass'n v. New Valley Corp. (In re New Valley Corp.), No , 1993 WL , at *4-5 (D.N.J. Jan. 28, 1993); Delphi, 2009 WL , at *8; N. Am. Royalties, 276 B.R. at ; In re Doskocil Cos., 130 B.R. 870, 876 (Bankr. D. Kan. 1991); 7 Collier on Bankruptcy [1] (Alan N. Resnick & Henry J. Sommer eds., 16th ed. rev. 2015) ("The majority of courts addressing section 1114's application to retiree benefits terminable at will have found that a debtor in possession need not comply with the procedures and requirements of section 1114."); -19-

20 Document Page 20 of 29 but see IUE-CWA v. Visteon Corp. (In re Visteon Corp.), 612 F.3d 210, 237 (3d Cir. 2010) (prohibiting debtors from terminating retiree benefits except in accordance with procedures and requirements of section 1114 of the Bankruptcy Code); Retailers Serv. Corp. v. Employees' Comm. of Ames Dep't Store, Inc. (In re Ames Dep't Stores, Inc.), Nos. 92 Civ , 1992 WL , at *1 (S.D.N.Y. Nov. 30, 1992); 11 In re Farmland Indus., Inc., 294 B.R. 903, 919 (Bankr. W.D. Mo. 2003). 42. It is a fundamental principle of bankruptcy law that a creditor generally receives in bankruptcy (at most) "the same protection he would have if no bankruptcy had ensued." Butner v. United States, 440 U.S. 48, 56 (1979); id. at 55 (bankruptcy law protects against a creditor, or debtor, "receiving a windfall merely by reason of the happenstance of bankruptcy") (quotation omitted); see also Tidewater Fin. Co. v. Kenney, 531 F.3d 312, 318 (4th Cir. 2008) ("creditors' entitlements in bankruptcy arise in the first instance from the underlying substantive law creating the debtor's obligation, subject to any qualifying or contrary provisions of the Bankruptcy Code") (quoting Travelers Cas. & Sur. Co. v. Pac. Gas & Elec. Co., 549 U.S. 443, 450 (2007)). 11 Notably, in subsequent proceedings arising out of the Ames chapter 11 cases, the Second Circuit indicated that section 1114 of the Bankruptcy Court should not apply to the termination of unvested retiree benefits. In In re Ames Dep t Stores, Inc., 76 F.3d 66, 69 (2d Cir. 1996), the Second Circuit reviewed a denial of attorneys' fees incurred in litigating the question whether the procedures of section 1114 must be followed where benefits need not contractually be continued. In resolving that issue, the court noted that its earlier decision in In re Chateaugay Corp., 945 F.2d 1205 (2d Cir. 1991) (discussed in further detail below), "favored the interpretation urged by [counsel for the bankrupt employer]" that section 1114 was inapplicable under such circumstances. Ames Dep't Stores, 76 F.3d at 71. The Ames Court stated: The editors of Collier on Bankruptcy a well-recognized authority in this area of the law, found the [company's] interpretation of the law to be persuasive. They said Section 1114 does not, however, protect retiree benefits beyond the contractual obligations of the debtor." 5 Collier [1][a] at (15th ed. 1995). See also id [2] at ("Retirees are protected by Section 1114 from the termination of benefits due to the filing of a petition under the Bankruptcy Code, but they are not protected from the termination of rights due to the expiration of the agreement."). Id. -20-

21 Document Page 21 of Congress added section 1114 to the Bankruptcy Code in the Retiree Benefits Bankruptcy Protection Act of 1988 ("RBBPA"). That statute created section 1114 and also, as a "conforming amendment," made certain amendments to former section 608(a), which was "stopgap legislation passed by Congress pending passage of the present [section] 1114." Doskocil, 130 B.R. at 875. Section 608(a) applied to cases initiated before section 1114 became effective on June 16, 1998, and imposed substantially similar terms regarding maintenance of retiree benefits in such cases. There is no suggestion that Congress, in enacting this statutory scheme, intended to give retirees greater rights than they would possess outside of bankruptcy. See Chateaugay, 945 F.2d 1205, (2d Cir. 1991) (holding that interim section 608(a) did not impose any extra-contractual obligation to continue benefits that could otherwise be modified or terminated; stating that the Bankruptcy Code as a whole (including section 1114) "requires that during reorganization the parties continue to provide benefits according to the plan in effect at the time of the declaration of bankruptcy; the Bankruptcy Protection Act does not alter the terms of the plan.") This view of the Chateaugay holding has been widely adopted by courts in various jurisdictions. See, e.g., New Valley Corp., 1993 WL , at *5 (noting that Chateaugay court held that debtor "was not obligated to make continued payments since section 1114 was aimed at preventing the unilateral cancellation of bargained-for benefits, not the operation of contract provisions mutually agreed upon"); N. Am. Royalties, 276 B.R. at As set forth in note 11 above, the Second Circuit subsequently has indicated that Chateaugay should apply in the section 1114 context. See Ames Dep't Stores, Inc., 76 F.3d at 69-71; see also Doskocil, 130 B.R. at 876 (noting that the "[p]resent Bankruptcy Code 1114 is section 2 of the Retiree Benefits Bankruptcy Protection Act and is based on the same legislative history supporting Section 3 as that interpreted in Chateaugay" and citing RBBPA legislative history as "further reason to adhere to this view" regarding debtor's ability to terminate benefits."). -21-

22 Document Page 22 of 29 (section 1114 "says nothing about whether the debtor can exercise a power reserved in the contract to terminate it and thereby end any obligation for retiree benefits as defined in Sec. 1114(a). Despite 1114, the debtor can terminate the contract as allowed by its terms.") (citing Doskocil, 130 B.R. at 870); In re Lykes Bros. S.S. Co., 233 B.R. 497, 517 (Bankr. M.D. Fla. 1997) (finding that section 1114 of the Bankruptcy Code was not implicated because "any retiree benefits to which retired employees of the Debtor may have been entitled [] as of the Petition Date were terminable under applicable nonbankruptcy law and were in fact effectively terminated by the Debtor during the pendency of this case"); In re CF & I Fabricators of Utah, Inc., 163 B.R. 858, 874 (Bankr. D. Utah 1994) (Section 1114 "does not protect retiree benefits beyond the contractual obligations of the debtor;" and "[t]he Bankruptcy Code does not create new rights upon filing bankruptcy that were not in existence prior to filing"). 45. A contrary view would stand on its head one of the fundamental purposes behind chapter 11 to facilitate the reorganization of a financially troubled company if the mere filing of a case under chapter 11 imposed additional financial obligations that would make it more difficult for a chapter 11 debtor to reorganize. See Daniel Keating, Bankruptcy Code 1114: Congress' Empty Response to The Retiree Plight, 67 Am. Bankr. L.J. 17, 43 (1993) [hereinafter, "Keating"] (noting that conclusion reached by Chateaugay and Doskocil courts was the "right one," and advising that "[t]he chief lesson in the Doskocil and Chateaugay holdings for both employers and retirees is to begin the assessment of their respective rights in a chapter 11 case not with 1114, but with the non-bankruptcy agreement that created the retiree benefits"); see also N. Am. Royalties, 276 B.R. at 867 (citing Keating, and noting that, given "unusual results" that could result from view that Congress meant section 1114 to vest rights that would -22-

23 Document Page 23 of 29 not vest outside of bankruptcy, "the court will not attribute that intent to Congress without convincing evidence, which does not exist"). 46. Finally, the appointment of a formal representative of the interests of the Debtors' retirees is not required prior to the entry of an order authorizing the termination of Non-Pension Retiree Benefits. See Doskocil, 130 B.R. at (declining to appoint official committee of salaried retirees where "there is no duty [to pay benefits] to the salaried retirees because ERISA law recognizes none" and, thus, "there is nothing to negotiate"); Lykes Bros., 233 B.R. at 517 (holding that section 1114 of the Bankruptcy Code does not require the appointment of an official retiree committee where benefits were terminable under applicable nonbankruptcy law). 47. Accordingly, for the foregoing reasons, the Court should enter an order granting the Motion and authorizing the Debtors to terminate Non-Pension Retiree Benefits otherwise payable to Non-Union Retirees. Notice 48. In accordance with the Order Establishing Certain Notice, Case Management and Administrative Procedures (Docket No. 111) (the "Case Management Order"), notice of this Motion has been given to (a) all parties on the Master Service List (as defined in the Case Management Order), (b) any party that has requested notice pursuant to Bankruptcy Rule 2002 (collectively, the "2002 Parties") and (c) the Non-Union Retirees. Because of their voluminous nature, the Debtors do not intend to serve Exhibits B through J to the Hill Declaration on the 2002 Parties or the Non-Union Retirees. Copies of such exhibits, however, will be available on the Court's docket, upon request from the Debtors and on the website of the Debtors' claims and noticing agent ( In light of the nature of the relief requested, the Debtors submit that no further notice is necessary. -23-

24 Document Page 24 of 29 No Prior Request 49. No prior request for the relief sought in this Motion has been made to this or any other Court in connection with these chapter 11 cases. WHEREFORE, the Debtors respectfully request that the Court (i) enter an order substantially in the form attached hereto as Exhibit A granting the relief requested herein and (ii) grant such other and further relief to the Debtors as the Court may deem proper. Dated: November 3, 2015 Richmond, Virginia Respectfully submitted, /s/ Henry P. (Toby) Long, III Tyler P. Brown (VSB No ) J.R. Smith (VSB No ) Henry P. (Toby) Long, III (VSB No ) Justin F. Paget (VSB No ) HUNTON & WILLIAMS LLP Riverfront Plaza, East Tower 951 East Byrd Street Richmond, Virginia Telephone: (804) Facsimile: (804) David G. Heiman (admitted pro hac vice) Carl E. Black (admitted pro hac vice) Thomas A. Wilson (admitted pro hac vice) JONES DAY North Point 901 Lakeside Avenue Cleveland, Ohio Telephone: (216) Facsimile: (216) ATTORNEYS FOR DEBTORS AND DEBTORS IN POSSESSION -24-

25 Document Page 25 of 29 EXHIBIT A Proposed Order

26 Document Page 26 of 29 JONES DAY North Point 901 Lakeside Avenue Cleveland, Ohio Telephone: (216) Facsimile: (216) David G. Heiman (admitted pro hac vice) Carl E. Black (admitted pro hac vice) Thomas A. Wilson (admitted pro hac vice) Attorneys for Debtors and Debtors in Possession HUNTON & WILLIAMS LLP Riverfront Plaza, East Tower 951 East Byrd Street Richmond, Virginia Telephone: (804) Facsimile: (804) Tyler P. Brown (VSB No ) J.R. Smith (VSB No ) Henry P. (Toby) Long, III (VSB No ) Justin F. Paget (VSB No ) IN THE UNITED STATES BANKRUPTCY COURT FOR THE EASTERN DISTRICT OF VIRGINIA RICHMOND DIVISION In re: Alpha Natural Resources, Inc., et al., Debtors. Chapter 11 Case No (KRH) (Jointly Administered) ORDER, PURSUANT TO SECTION 363 OF THE BANKRUPTCY CODE, AUTHORIZING DEBTORS TO TERMINATE CERTAIN UNVESTED NON-PENSION BENEFITS This matter coming before the Court on the Motion of the Debtors, Pursuant to Section 363 of the Bankruptcy Code, for an Order Authorizing Debtors to Terminate Certain Unvested Non-Pension Benefits (the "Motion"), 1 filed by the above-captioned debtors and debtors in possession (collectively, the "Debtors"); the Court having reviewed the Motion, the Declaration of Judy Tweed Hill in support thereof (the "Hill Declaration"), all other documents filed in support of the Motion and all responses thereto, and having considered the statements of counsel with respect to the Motion at a hearing before the Court (the "Hearing"); the Court 1 Capitalized terms not otherwise defined herein shall have the meanings given to them in the Motion.