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Note: Under the U.S. Coal Industry Retiree Health Benefit Act of 1992 (the Coal Act), Arch Coal, Inc. (Arch Coal), owner of several coal operating subsidiaries at the time of promulgation, was required to pay monthly healthcare premiums to mine workers not otherwise covered by employer plans. Additionally, Arch Coal was required to secure such payments “in the form of a bond, letter of credit, or cash escrow”. Arch Coal opted to post a bond and maintained the same as security until Arch Coal sold its subsidiaries to Magnum Coal Company which in turn replaced the bond with its own security. Eventually, Magnum Coal was sold to Patriot Coal Corp. which applied and obtained security in the form of a USD 8,608,392 letter of credit issued by Fifth Third Bank (Issuer) in favor of “the 1992 Plan” (Union).

Later, Patriot Coal declared bankruptcy and was released from its responsibilities under the Coal Act. Arch Coal, however, was a “related person” under the Coal Act; thus, Arch Coal’s status “remained fixed by the Coal Act based on a snapshot of 1992”. Arch Coal informed Union that it would “begin providing benefits to its former subsidiaries’ qualifying retirees.” Although Arch Coal began to pay the monthly premiums, Union made a full demand on the LC provided by Patriot Coal, which Issuer honored. Subsequently, Union requested that Arch Coal post security pursuant to its statutory obligation as a “related person.” When Arch Coal refused on the basis that Union already had security in the form of a “cash escrow” from the LC proceeds, Union sued Arch Coal to compel it to post security. Arch Coal counterclaimed seeking a return of “excess security”. Both parties moved for summary judgment and the United States District Court for the District of Columbia, Friedrich, J., granted Union’s motion in part and denied the motion in part.

The Judge was presented with three issues of statutory interpretation: (1) whether as a “related person” under the Coal Act, Arch Coal was jointly and severally liable to provide security; (2) if so, whether that obligation was discharged by Patriot Coal’s LC despite Union having drawn down the credit; and (3) whether the statute mandated how such security proceeds were to be used by Union.

The relevant Coal Act section made “any related person to any [1988 last signatory] operator…jointly and severally liable… for any amount required to be paid by such operator under this section.” (Emphasis added). Arch Coal argued that because the relevant section used the term “paid”, its joint and several liability under the Coal Act was limited to payments and not the posting of security. After noting that the Coal Act did not define the emphasized section, the Judge “agree[d] with [Union] that the plain text and structure of [relevant Coal Act Sections] unambiguously hold related persons jointly and severally liable for the obligation to provide security”.

Arch Coal argued that even if it were obligated to provide security, the LC satisfied that obligation despite having been drawn down by Union. The Judge disagreed, however, looking to the text of the statute which required “security to be provided in one of three specific forms”: a bond, LC or cash escrow. “Because [Arch Coal] has not arranged for the provision of security in any of those forms, it has not met its obligations under [the Coal Act]”.

Arch Coal also argued that the proceeds from the LC could only be used to cover “the cost of providing health benefits for the beneficiaries” of the Coal Act. The Judge rejected that argument noting that Arch Coal cited a section that “merely determines the amount of security required and, at most, reveals the purpose behind that requirement.” While the Judge was “sympathetic” to the fact that Arch Coal now faced an obligation to provide security where Union “received over [USD]8 million without incurring any corresponding loss or obligation”, Union’s “windfall” was “due to the terms of Patriot’s letter of credit, not the Coal Act.” The Judge denied Union’s request for attorney’s fees.

[MJK]

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