[00:00:01] Speaker 03: case number eighteen seventy-one fifty-nine michael h holland as trustee as the u n w a nineteen ninety-two benefit plan at l versus article eight Mr. Woodrum for the appellant, Mr. Schuchner for the appellate. [00:00:39] Speaker 01: Good morning. [00:00:40] Speaker 01: You may please the court. [00:00:42] Speaker 01: I'm John Woodruff. [00:00:43] Speaker 01: I represent the Appellant Arch Coal Company in this case. [00:00:47] Speaker 01: The UMW 1992 benefit plan functions primarily as an orphan plan to backstop health care benefits should retirees who are supposed to receive those benefits from their last employer cease to be able to provide those benefits. [00:01:06] Speaker 01: Here the plan alleges that Arch Cole is in violation of the Act because it has not provided more than $8 billion of security to the plan. [00:01:18] Speaker 01: The plan's claim must be rejected for two reasons. [00:01:21] Speaker 01: First, the statute does not authorize, by its plain language, the plan to demand security from a related person [00:01:32] Speaker 01: to a 1988 signatory operator, which is the entity that the Act requires actually provide the security. [00:01:42] Speaker 01: The second reason is that even if a co-obligor such as Arch Cole were required to provide the security that the Act says the actual signatory operator must provide, that security has been provided. [00:02:02] Speaker 01: As a threshold matter, this court is tasked with resolving the party's competing views concerning the breadth of the joint and several liability that Section 9712D4 of the Co-Act imposes on related persons for the obligations of their affiliated secretory companies. [00:02:28] Speaker 01: Section 9712D1 specifies that 1988 signatory operators are required to pay two specific premiums. [00:02:39] Speaker 05: Can I just ask you a question before we get into the teeth of the text of the provision, which is this. [00:02:45] Speaker 05: Let's just put aside the text for a second. [00:02:49] Speaker 05: Sure. [00:02:49] Speaker 05: And why would Congress have created a statute under which a related entity is on the hook [00:02:57] Speaker 05: if the premiums aren't paid, but a related entity is not on the hooks if a security isn't supplied? [00:03:05] Speaker 01: Well, several reasons. [00:03:07] Speaker 01: First, there is in the statute a number of specific assignments of liabilities to some entities but not to others. [00:03:18] Speaker 01: So there is a demonstrated structure within the act [00:03:25] Speaker 01: for related persons, for example, to be responsible for some obligations but not others. [00:03:31] Speaker 01: For ADA signatories to be responsible for some obligation and not others. [00:03:36] Speaker 01: With respect to the security itself, [00:03:39] Speaker 01: The obligation under this act lasts for the lifetime of the people who are entitled to benefits. [00:03:48] Speaker 01: So it's a very long trail of liability. [00:03:53] Speaker 01: And certainly within the coal industry, as in many industries, there are transactions that occur where companies that have this liability, the 88 signatories, [00:04:06] Speaker 01: as in this case, might be sold to other third parties. [00:04:11] Speaker 01: So Congress was focused on making sure that the premiums were always paid. [00:04:18] Speaker 01: And premiums are paid on a monthly ongoing basis for the duration of the existence of the plan, so that the plan has assets with which to operate. [00:04:30] Speaker 01: By comparison, security is posted once. [00:04:34] Speaker 01: And it remains, it's irrevocable, the terms of the security say it's irrevocable. [00:04:39] Speaker 05: Right, but what I'm asking is, suppose the security isn't provided. [00:04:44] Speaker 05: Let's just imagine a world in which the 1988 last signatory operator doesn't provide the security. [00:04:51] Speaker 05: Then that's the situation that we're concerned with because if that doesn't happen, the question is can the plan go after a related entity? [00:05:00] Speaker 05: And what I'm not quite following is we know what happens if the premiums aren't paid. [00:05:05] Speaker 05: The statute says by everybody's admission, you can go after, the plan can go after a related entity because the premiums have to be paid. [00:05:12] Speaker 05: But the statute also presupposes that a security will be provided. [00:05:15] Speaker 05: And if the security just isn't provided, [00:05:17] Speaker 05: Why would Congress have said, well, you can go after a related entity when the premiums aren't paid, but you can't go after a related entity when the security's not provided? [00:05:24] Speaker 05: Because they clearly thought the provision of the security mattered because the security is there as a backstop in case [00:05:31] Speaker 05: the plan needs access to some assets with which to pay the beneficiaries. [00:05:36] Speaker 05: What would be the rationale for drawing a distinction between the provision of the security and the payment of the premiums? [00:05:42] Speaker 01: The rationale would be that the 88 signatories by definition were in business at the time of enactment. [00:05:49] Speaker 01: They were the [00:05:50] Speaker 01: the contract signatories that existed when this entire COAC was constructed and enacted. [00:05:56] Speaker 01: So they were in business. [00:05:58] Speaker 01: There would be a right of the plan, should those companies fail to provide the security, to go into court and seek an injunction requiring them to provide it. [00:06:09] Speaker 05: Which is also true of the premiums. [00:06:11] Speaker 01: If they weren't paying the premiums, they could do the same thing with respect to the premiums. [00:06:15] Speaker 05: Right, but everybody agrees that related entities are on the hook for the premiums. [00:06:21] Speaker 05: Why wouldn't they also be on the hook for the security? [00:06:23] Speaker 01: Well, because there would be no need to because they are on the hook for the premiums and the premiums are what the plan needs to conduct its operation and to pay for the benefits. [00:06:35] Speaker 03: Then why was security required in the first place? [00:06:37] Speaker 01: Well, because not every [00:06:39] Speaker 01: In fact, probably the majority of companies didn't have related entities that could pick up the premium obligation if the signatory entity failed to pay the premiums. [00:06:52] Speaker 01: So if they cease to pay premiums, there's nowhere to go to force a third party such as a related person to pay the premiums and to assume the responsibility for providing benefits to the actual individuals in [00:07:07] Speaker 01: who are receiving benefits from the plan. [00:07:10] Speaker 03: So... How isn't the amount of the security required based upon the expected cost for the following year? [00:07:19] Speaker 01: That's correct. [00:07:22] Speaker 03: The plan projects... And just for that one year? [00:07:24] Speaker 01: Currently, that's correct. [00:07:25] Speaker 03: So in such a situation you've just described, where a 1988 company fails, the security is going to be there only for... and there's no related entity. [00:07:35] Speaker 03: Security is going to be there for just to cover one year's worth, right? [00:07:38] Speaker 03: One year's worth. [00:07:39] Speaker 03: And then all the employees become orphans. [00:07:44] Speaker 01: By definition, if it goes out of business and it can't provide the benefits, then its employees become, or retirees rather, become eligible for the plan. [00:07:55] Speaker 01: And the security was intended to provide a year's worth of coverage in that situation. [00:08:01] Speaker 03: And now a year's worth of coverage is no longer necessary, you're saying? [00:08:06] Speaker 03: in that situation, pardon me, where there is a related entity. [00:08:09] Speaker 01: Where there is a related entity, the related entity essentially is the security for the plan because it now, as happened in this case, we had a couple of thousand, or a thousand, at least a thousand beneficiaries [00:08:23] Speaker 01: of these 88 signatory companies, subsidiaries. [00:08:27] Speaker 05: But something could happen to the related entity too. [00:08:29] Speaker 05: So I wasn't aware that just because a related entity, is it true that if a related entity takes over the payments then the obligation to have a security just disappears? [00:08:40] Speaker 01: No, the obligation to have the security doesn't disappear. [00:08:42] Speaker 01: The security has already been posted. [00:08:44] Speaker 01: And the plan has that money. [00:08:47] Speaker 01: They acknowledge that they have the security that was posted by those signatories. [00:08:52] Speaker 01: So the only reason Arch could ever have an obligation to provide the [00:08:57] Speaker 01: security would be if the related person, or the signatory company rather, never provided it, but by definition they have provided it. [00:09:10] Speaker 01: They have a statutory obligation to provide it. [00:09:13] Speaker 05: I thought your position is that even if [00:09:15] Speaker 05: the signatory didn't provide the security, Arch would never have to submit. [00:09:18] Speaker 01: Exactly. [00:09:19] Speaker 01: That's our statutory interpretation article. [00:09:22] Speaker 01: There's just no obligation here on the related person to provide security because it's directed to be provided by the 1988 [00:09:34] Speaker 01: operator that actually employed the people, and it's not an amount required to be paid to the fund. [00:09:39] Speaker 01: It's never paid, actually paid to the plan. [00:09:42] Speaker 01: It's an instrument, a security instrument that is held, but it doesn't become an asset of the plan. [00:09:47] Speaker 01: The only time the plan should take the money in, the security in, is if they actually end up having to provide benefits. [00:09:54] Speaker 03: Mr. Woodman, if we don't agree with your reading of, I guess it's 9712D something, right? [00:10:00] Speaker 03: D4, yes, your honor. [00:10:02] Speaker 03: If we don't agree with that, how can we find in your favor without challenging the plans having drawn down the security? [00:10:13] Speaker 01: By simply finding that the security was provided. [00:10:18] Speaker 01: It's security that was required under the Act. [00:10:23] Speaker 01: It was provided by Arch Cole's co-obligor, its 88 signatory companies, and [00:10:32] Speaker 01: Therefore, the Act was complied with. [00:10:34] Speaker 01: ARCH's only obligation, even if we assume that it has a joint and several liability for security that is not posted, is security that's not posted. [00:10:46] Speaker 01: Here, the security was provided. [00:10:50] Speaker 03: You just made reference to co-applicants, I think. [00:10:54] Speaker 03: Correct. [00:10:55] Speaker 03: The co-applicants were the two subsidiaries, is that right? [00:10:59] Speaker 01: The two subsidiaries were co-applicants on the bond that the plan foreclosed, or not the bond, but the letter of credit that the plan foreclosed. [00:11:11] Speaker 03: Right. [00:11:12] Speaker 03: You also say, I think it's at 45, that the plan documents track, well, are parallel to, run parallel as it were to the [00:11:23] Speaker 03: statutory requirements as you see them, where the plan document says any bond, letter of credit, et cetera, shall be paid to the trust in the event that the 1988 LSO fails to meet its obligations to provide benefits. [00:11:43] Speaker 03: And you say, well, there's been no failure of an LSO or related person. [00:11:48] Speaker 03: And for that reason, the proceeds should be segregated. [00:11:55] Speaker 03: That's correct. [00:11:55] Speaker 03: That's the plan document, not the statute. [00:11:58] Speaker 01: The plan document, the statute. [00:12:00] Speaker 01: simply says that security has to be provided. [00:12:04] Speaker 01: It's the plan document itself that defines when they will take the security. [00:12:10] Speaker 03: So, I mean, I think a fair reading of this paragraph, to correct me if I'm wrong, is that you're saying that the drawdown violated the plan document. [00:12:20] Speaker 01: No, I don't know that the drawdown violated the plan document. [00:12:25] Speaker 01: I think the drawdown was permitted by the commercial instrument. [00:12:28] Speaker 03: Well, but those can coexist. [00:12:31] Speaker 03: The letter of credit may have allowed the drawdown on the basis of the failure of the guarantor. [00:12:41] Speaker 03: And yet, that drawing down might still be in violation of the plan document. [00:12:46] Speaker 01: I think the drawing down, per se, [00:12:50] Speaker 01: is not violative. [00:12:52] Speaker 01: I think what is violative is when they drew down the security and then characterized it as they do in this case as a plan asset when their own plan document says they only, because they hold security, they have for example a cash escrow account. [00:13:11] Speaker 01: and they can, if they have to take beneficiaries in and the amount has been secured through a cash escrow, they'll draw the cash out of the, or the money out of the cash escrow account when they take in the beneficiaries. [00:13:26] Speaker 01: That's what you're referring to there, Judge Ginsburg, is when can [00:13:32] Speaker 01: security become an asset of the plan. [00:13:35] Speaker 01: It's not an asset of the plan just because it's provided. [00:13:37] Speaker 01: It's not paid to the plan as a premium or as a liability. [00:13:44] Speaker 01: In fact, over time, it's returned to the operators as their obligations go down. [00:13:49] Speaker 01: So the only time they can take in the asset on the cash which they received from this letter of credit is if they bring in the beneficiaries into the plan and provide them benefits, then they can use it, put it in as a plan asset, and use it to provide benefits for beneficiaries. [00:14:08] Speaker 05: So can I ask this question? [00:14:10] Speaker 05: If the security was drawn down and was used to pay benefits, [00:14:16] Speaker 05: Yes. [00:14:16] Speaker 05: Then would there still be an obligation to replace the security? [00:14:21] Speaker 01: If the court rejects our statutory interpretation, that the... Right. [00:14:27] Speaker 05: So let's assume... I don't have any word about related entities right now. [00:14:30] Speaker 05: Let's assume it's a statement. [00:14:31] Speaker 05: Let's assume it's a 1988 signatory operator. [00:14:34] Speaker 05: I'm just saying that if the security is used, is drawn down on, I don't know if I'm using the right terminology, is drawn down on [00:14:42] Speaker 05: and the proceeds from that are used to pay benefits, then there's no security anymore. [00:14:51] Speaker 05: It was used in the way that you think is the right way. [00:14:53] Speaker 05: Then would you say at that point that there's no requirement to have a security in place, or would you say, no, there's still a requirement to have a security in place? [00:15:03] Speaker 01: The reason they would draw down security of any type to provide benefits is because the benefits aren't being provided. [00:15:11] Speaker 01: So their first right would be to seek to compel the statutorily liable party, which in this case could be the operator or the related person, to actually provide the benefits because that is an obligation. [00:15:24] Speaker 01: It really falls on Arch and related parties. [00:15:26] Speaker 05: I'm just trying to get to a simple question. [00:15:29] Speaker 05: However this comes about, if what ends up happening is the security is used, is liquidated, and the proceeds are used to pay benefits, it seems to me that there would still have to be a security in place. [00:15:43] Speaker 05: So then some entity would have to provide a security. [00:15:47] Speaker 05: Because that's only done for one year, and there's future benefits for future years. [00:15:52] Speaker 05: Those are going to have to be paid. [00:15:54] Speaker 05: And presumably the statute contemplates that there would be a security in place for the payment of those future benefits also. [00:16:00] Speaker 01: Well, Judge Sirdosian, if they've used the security to provide the benefits, then how would they come back to Arch and say, you have to pay for the same benefits? [00:16:12] Speaker 05: I'm not asking about who they're going to. [00:16:15] Speaker 05: I'm even talking about a subsequent year. [00:16:17] Speaker 05: I think the way I understand the way the security works, and I think this is what was said in response to Judge Ginsburg's question, is the security is designed to allow for the payments for one year. [00:16:25] Speaker 05: So let's just suppose that happens. [00:16:26] Speaker 05: There's still subsequent years. [00:16:29] Speaker 05: And as to those subsequent years, wouldn't there be a requirement to have a security in place to provide a backstop for the payment of benefits in those subsequent years too? [00:16:39] Speaker 01: The statute doesn't require that. [00:16:41] Speaker 01: It simply says that the related person will provide a security. [00:16:45] Speaker 01: That's sort of the measure, if you will, the measure of damages or liability. [00:16:50] Speaker 01: when the plan has to take in beneficiaries. [00:16:53] Speaker 01: Now, if the parties still exist that can be required to provide the benefits, then there can be actions taken against those parties to provide the benefits for all of the beneficiaries that the plan has itself provided benefits for. [00:17:11] Speaker 01: So whether one would characterize the receipts, for example, if the plan [00:17:18] Speaker 01: took in these beneficiaries and then Arch later was sued successfully by the plan because it's a related person and should have provided the benefits, then [00:17:31] Speaker 01: What would the recovery be? [00:17:33] Speaker 01: Would it be just the obligation for ARCH to provide benefits going forward from there on because the security was used to pay those benefits? [00:17:43] Speaker 01: Or would the obligation be to re-characterize, to collect from ARCH [00:17:49] Speaker 01: the premiums it didn't pay and re-characterize the amount that the plan used instead from the security to provide the benefits, re-characterize that amount as the security because otherwise there would be a double payment and there would be no basis to have double payment for the same beneficiaries for the same benefits. [00:18:15] Speaker 03: Were there other co-applicants on the letter of credit? [00:18:22] Speaker 01: The letter of credit that was taken, the co-applicant, I think the only two signatory companies at that time on the letter of credit were Apogee and Hobart. [00:18:33] Speaker 01: The letter of credit was arranged by Patriot Coal, which was a new parent that was not a Coal Act entity, but it did arrange with its security company to provide the letter of credit and listed these two companies as co-applicants. [00:18:51] Speaker 01: That letter of credit had at one time had a number of other companies on there unrelated to Arch that Patriot owned that had Coal Act obligations too. [00:19:01] Speaker 01: So if you look at the letter of credit, [00:19:03] Speaker 01: Some of them have a lot of co-companies on there, but the only ones being secured as of the time of the bankruptcy, as I understand it, were the two arts subsidiaries. [00:19:14] Speaker 02: When Magnum bought, purchased the two subsidiaries, that's when Magnum, the letter of credit came as a result of that. [00:19:28] Speaker 02: Did Magnum produce the letter of credit by virtue of its purchasing Arch's two subsidiaries? [00:19:34] Speaker 01: Well, Arch obligated in the transaction documents for Magnum to replace the security that it had provided. [00:19:46] Speaker 01: Exactly. [00:19:46] Speaker 02: So couldn't Arch have protected itself from this situation by not agreeing to the clause in the letter of credit which allowed it to be drawn down [00:20:03] Speaker 02: eventually patriot went bankrupt. [00:20:06] Speaker 02: In other words, what I'm asking is, couldn't Arch have completely, the problem for Arch here is the terms of the letter of credit, which it could have influenced back at Magnum's purchase of its subsidiaries. [00:20:23] Speaker 01: Isn't that right? [00:20:27] Speaker 01: Yes, I think that's a fair statement. [00:20:30] Speaker 01: The letter of credit that the plan uses as its form letter of credit provides for a situation which the COAC itself doesn't. [00:20:39] Speaker 01: It provides that it can draw down a letter of credit if the signatory companies cease to provide a plan. [00:20:47] Speaker 02: But is that required in the letter of credit? [00:20:50] Speaker 01: It is stated in the letter of credit that that is a term for it. [00:20:54] Speaker 01: Correct. [00:20:55] Speaker 02: I got that. [00:20:56] Speaker 02: But could Arch have said, we don't want that in there? [00:21:00] Speaker 01: Well, at that point in time, Arch had no connection to these companies. [00:21:04] Speaker 01: They had been sold decades earlier. [00:21:05] Speaker 02: No, but Arch was negotiating. [00:21:07] Speaker 02: Wait a minute. [00:21:13] Speaker 02: Magnum bought Arch's two subsidiaries, right? [00:21:15] Speaker 02: Correct. [00:21:16] Speaker 02: OK. [00:21:16] Speaker 02: It's at that point. [00:21:17] Speaker 02: that Arch could have said is a condition of sale, we want the letter of credit not to have that provision in there. [00:21:24] Speaker 02: Because we don't want the future liability of, we don't want to face the future problem of what happens if Magnum or its successor Patriot goes under. [00:21:38] Speaker 01: I don't think it could successfully have done that because the letter of credit is actually [00:21:43] Speaker 01: a form letter of credit that the plan requires. [00:21:46] Speaker 02: Oh, well, I just asked you if the plan required it, and you said no. [00:21:49] Speaker 02: I wouldn't have asked my follow-up question if you had said no. [00:21:52] Speaker 01: Oh, sorry. [00:21:52] Speaker 01: I didn't understand. [00:21:54] Speaker 02: OK, so that letter of credit's required by the plan. [00:21:56] Speaker 01: That letter of credit, the appendix has a series of form letter of credits or security instruments that the plan will accept. [00:22:05] Speaker 01: And that is a provision in each type of security. [00:22:12] Speaker 03: And they also each provide for two [00:22:14] Speaker 03: alternative grounds for drawing down security. [00:22:20] Speaker 03: Does each letter of credit provide two grounds disjunctively on which the trustee can draw down the credit? [00:22:27] Speaker 03: That's correct. [00:22:28] Speaker 03: Either ceasing to pay premiums or ceasing to operate. [00:22:35] Speaker 01: ceasing to provide the benefits or the plan enrolls the beneficiaries. [00:22:40] Speaker 01: And that's the disjunctive problem that we have here is because the benefits never stop being provided because ARCH has a statutory duty to provide the benefits which it immediately accepted and assumed. [00:22:53] Speaker 01: But the letter of credit terms which the plan exercised says that, well, although the letter of credit is for the purpose [00:23:05] Speaker 01: of compensating the plan for a year's worth of benefits if we have to take the people in, the letter of credit itself permitted them to convert this letter of credit into cash. [00:23:19] Speaker 01: And our whole point is the fact that it was converted to cash doesn't make it any less security. [00:23:25] Speaker 01: Cash is probably better security than a letter of credit. [00:23:28] Speaker 01: So their whole case and their whole theory here is to throw up their hands and say, well, but cash is not security. [00:23:36] Speaker 01: And that's just a diversion on their part, because a letter, a compliant letter of credit was provided. [00:23:43] Speaker 01: They exercised the right to take it. [00:23:47] Speaker 01: But now they want Arch to put up another one, and they still have. [00:23:51] Speaker 01: the proceeds from that letter of credit. [00:23:55] Speaker 01: And the proceeds are what is intended by the act to serve as the recourse or resource for the plan in the event that it ever has to take these beneficiaries in. [00:24:07] Speaker 03: You didn't quite argue that a remedy is required to avoid an unjust enrichment, did you? [00:24:16] Speaker 01: We didn't specify that as [00:24:19] Speaker 01: a remedy, the trustees are charged even in their own plan documents with establishing the rules for security. [00:24:30] Speaker 01: In our view, we don't have an obligation to provide the letter of credit because it was provided. [00:24:37] Speaker 01: And even if a related person is responsible for the credit, [00:24:42] Speaker 01: that the Act says that ARCH is jointly and severally liable with such operator, that is the signatory operators, for any amount required to be paid by such operator under this section. [00:24:55] Speaker 01: That happened. [00:24:56] Speaker 01: That was done. [00:24:57] Speaker 01: If you call a letter of credit an amount required to be paid to squeeze it in and make it a liability of ARCH, then that amount required to be paid was paid. [00:25:09] Speaker 01: And we can't be made [00:25:11] Speaker 01: based on a theory of joint and several liability as a related person, to pay again what our co-obligor, the signatory companies, have already paid. [00:25:23] Speaker 01: So the problem lies with- I hear you saying that. [00:25:26] Speaker 03: Pardon? [00:25:26] Speaker 03: I hear you saying that you cannot be obliged to pay again. [00:25:29] Speaker 03: We should not be. [00:25:31] Speaker 03: We should not be. [00:25:32] Speaker 01: And we hope the court will agree with us. [00:25:35] Speaker 03: But you're not able to pin that to any specific provision in the statute or in the plan documents. [00:25:44] Speaker 01: Well, yes, I think that the statutory section itself says that. [00:25:49] Speaker 01: Our obligation as a related person, even if we're obligated for security, is as a co-obligor with our subsidiaries, then-subsidiaries, to provide a letter of credit. [00:26:03] Speaker 01: That's the statutory obligation it was complied with. [00:26:07] Speaker 01: And the only reason we're here today is because the plan unilaterally took the letter of credit. [00:26:14] Speaker 01: We didn't terminate it. [00:26:15] Speaker 01: Nobody on the company side terminated the letter of credit. [00:26:19] Speaker 01: In fact, it was drawn down. [00:26:21] Speaker 01: So we were fully compliant, and our co-obligores were fully compliant. [00:26:26] Speaker 01: And the plan acknowledges that, yes, we do have that cash. [00:26:29] Speaker 01: So they are the ones who are [00:26:33] Speaker 01: obligated, this is a case of first depression. [00:26:36] Speaker 01: It hasn't happened before. [00:26:37] Speaker 01: They don't have a rule for this situation. [00:26:40] Speaker 01: They don't have a trustee resolution or anything that addresses this unique situation. [00:26:47] Speaker 01: Our position is it's up to them to decide how to treat it. [00:26:51] Speaker 01: But it is not our statutory obligation as an entity that may be required by virtue of a patrol group related person's status to stand good for an obligation, to stand good a second time. [00:27:08] Speaker 03: So now you're saying, I don't think I got this from the briefs, that I thought you were asking for a remedy in which it did matter what they did with the money drawn down. [00:27:20] Speaker 03: Now you're saying, oh, it just matters that we don't have a second obligation here. [00:27:25] Speaker 01: Well, both, Your Honor. [00:27:26] Speaker 01: We don't have a second obligation. [00:27:27] Speaker 03: Please don't gesture your court. [00:27:31] Speaker 01: Go on. [00:27:33] Speaker 01: If we don't have to provide it. [00:27:36] Speaker 03: Then you don't care what they do with it. [00:27:39] Speaker 01: We don't care. [00:27:40] Speaker 01: But the reason we don't have to provide it is because we believe they should characterize it as security. [00:27:47] Speaker 01: because that's what it was before they cashed it in. [00:27:51] Speaker 01: And that's what it is today. [00:27:51] Speaker 03: At some point, it seemed to me you were arguing that it had to be used for the benefit of your attributable employees. [00:27:58] Speaker 01: It has to be used to provide benefits to our employees. [00:28:04] Speaker 03: Now that's different than just saying you don't care what they do with it, as long as we don't have to replace it. [00:28:10] Speaker 01: Well, that's an alternative argument. [00:28:11] Speaker 01: That's another reason why they are not entitled. [00:28:15] Speaker 01: It's part and parcel of the same [00:28:17] Speaker 01: problem. [00:28:18] Speaker 01: They aren't entitled to require another letter of credit. [00:28:22] Speaker 03: It's not part and parcel. [00:28:23] Speaker 03: You could get a remedy that says you don't have to put up a second security or you could get one that says and the benefits, pardon me, the proceeds from the letter of credit must be dedicated to your attributable employees. [00:28:36] Speaker 03: They're not the same thing. [00:28:38] Speaker 01: Well, we would accept [00:28:42] Speaker 01: Because we didn't take any position at all with the plan previously, other than all our obligation is to, all the plan's obligation, if it takes the letter of credit, before it can use the letter of credit, the proceeds from it, it's concomitant with an obligation to take in the beneficiaries. [00:29:09] Speaker 01: And they didn't do that. [00:29:11] Speaker 01: So they can't call it an asset, which is what they're doing here, as justification for requiring us to post another letter of credit. [00:29:18] Speaker 01: They're saying, it's gone. [00:29:19] Speaker 01: It's an asset of the plan. [00:29:21] Speaker 01: But it can't be an asset of the plan, because they haven't taken it into beneficiaries, and the two things are joined. [00:29:28] Speaker 02: OK. [00:29:28] Speaker 02: I think we're getting some repetition here. [00:29:30] Speaker 02: Why don't we hear from the other side, and then I'll give you a couple of minutes, OK? [00:29:35] Speaker 02: Mr. Schuster. [00:29:50] Speaker 00: Thank you, and may it please the court. [00:29:51] Speaker 00: I'm Stephanie Schuster, here on behalf of the Appalachians, the trustees of the 1992 plan. [00:29:57] Speaker 00: In its brief, at least, at pages 15 and 16 of the opening and 23 of the reply, ArchCole concedes that the 9712 security requirement is a performance guarantee, and it ensures performance of a company's obligation to maintain an individual employer plan under 9711. [00:30:12] Speaker 00: Arch also concedes that it is one of the companies responsible for maintaining an individual employer plan. [00:30:19] Speaker 00: Each of Arch's theories for an exemption from the concomitant duty to post a security to guarantee its performance is contrary to the plain language of the Colac. [00:30:29] Speaker 00: Starting first with the scope of related person liability, Arch as a related person is jointly and severally liable for any amount required to be paid that's per 9712D4 under 9712D. [00:30:41] Speaker 00: As a matter of ordinary meaning, amounts can be paid in different mediums. [00:30:45] Speaker 00: They can be paid in money, like the premiums the statute requires, or they can be paid in something else of value, like the security the statute requires. [00:30:54] Speaker 00: And indeed, in Section 9712 and throughout the Cole Act, when Congress wanted to refer exclusively to premiums, it used a different, more specific phrase. [00:31:03] Speaker 00: It said any premium required to be paid. [00:31:06] Speaker 00: Congress used the broader phrase in situations where it wanted to reach other types of payments. [00:31:10] Speaker 00: As here, it said any amount required to be paid. [00:31:13] Speaker 00: For example, section 9704A requires operators to pay premiums and only premiums to the combined fund, so Congress made related persons jointly and severally liable for any premium required to be paid under that section. [00:31:27] Speaker 05: Can I ask a question about how this works out in practice under your view? [00:31:29] Speaker 05: So let's put aside this textual argument for a second. [00:31:33] Speaker 05: Let's suppose that there's a bunch of related entities that are possible. [00:31:38] Speaker 05: The way that you're construing the statute, as I understand it, is that when the signatory operator enters into bankruptcy, then that affords an occasion to draw down on the letter of credit. [00:31:52] Speaker 00: And then... It's the cessation of providing benefits on the IP, correct? [00:31:55] Speaker 00: Okay. [00:31:55] Speaker 05: And then so then the plan then gets the proceeds of the letter of credit, and then a new entity has to supply the security. [00:32:04] Speaker 05: All right, so then the way you perceive it is we get to draw down on the letter of credit, we take those funds, and we don't even need to use them to pay benefits. [00:32:13] Speaker 05: We can just do whatever we want with them. [00:32:14] Speaker 05: We treat them as an asset. [00:32:15] Speaker 05: And then let's suppose that the related entity that becomes a substitute provider of the security also goes under. [00:32:22] Speaker 05: So then I think the way you would get through it is, okay, then we get to draw down on the letter of credit that they, by hypothesis, supplied. [00:32:28] Speaker 05: We don't have to use it to pay benefits. [00:32:29] Speaker 05: We get to put it as an asset. [00:32:31] Speaker 05: Then another related entity comes in and also has to provide a security. [00:32:35] Speaker 05: And does it just keep going on forever? [00:32:36] Speaker 05: So it just, that the plan just kind of accumulates assets forever because? [00:32:40] Speaker 00: Not quite, Your Honor. [00:32:41] Speaker 00: And as Arch has pointed out, this is an unusual scenario, but it's one of Arch's own making. [00:32:46] Speaker 00: In the past, ordinarily, when a related person is gonna take over [00:32:50] Speaker 00: another – a bankrupt entity, for example, its COAL Act obligations. [00:32:54] Speaker 00: That entity will arrange to either replace or take over the existing security, and they'll do so seamlessly so that it's effective on or around the date that they actually take over the IEP obligation. [00:33:05] Speaker 00: That ensures that there's no condition to draw is triggered, and we go ahead and release the existing security because we don't need to. [00:33:11] Speaker 00: But what happened here was different. [00:33:13] Speaker 00: ARCH chose not to take over or replace Patriot Security, not on November 1 of 2015, when it took over the IEP, or in the 40 days that followed between when the plan eventually called the security, faced with a looming bankruptcy and an expiration of the existing letter of credit, which had been triggered. [00:33:30] Speaker 00: So it doesn't quite happen that way. [00:33:32] Speaker 00: This is the only time, because it has to be there. [00:33:35] Speaker 05: So I get that, I guess. [00:33:36] Speaker 05: So that would mean that ARCH, if had ARCH provided immediately assumed responsibility for the security, then the way you construed it as a plan would have had no occasion to draw down on the security? [00:33:47] Speaker 00: Yeah, it would have, as a matter of prudence, it's only allowed one security for this obligation. [00:33:51] Speaker 00: It's not going to hold two. [00:33:52] Speaker 05: But then let's just suppose, I guess my question is, this unfolded the way that it did, and what ends up happening is the plan draws down on the security, takes those proceeds, and let's just suppose that they're not being used to pay the beneficiaries, which I understand that there's not a dispute about that, but let's just assume that that's the case. [00:34:10] Speaker 05: Then you have that as an asset, and then you also have a security. [00:34:14] Speaker 05: So you have the asset, which is, [00:34:16] Speaker 05: an amount of funds that's there to supply benefits for a year, and then you also get a security that Arch is supposed to supply that is designed to do the same thing, provide funds to pay benefits for a year. [00:34:30] Speaker 05: So there's two catches of money basically that are designed to do the same thing. [00:34:34] Speaker 05: And then let's suppose that another, that Arch goes bankrupt, and then the next related entity that's on the conveyor belt just takes the same position that Arch did. [00:34:41] Speaker 05: And then under your view, I take it the plan could do exactly the same thing again. [00:34:45] Speaker 05: They would draw down on the security, then they would triple the amount that's there to pay off beneficiaries for a year. [00:34:52] Speaker 05: And then the next related entity would also have to supply a security. [00:34:55] Speaker 00: Well, it's correct, Your Honor. [00:34:57] Speaker 00: If Arch were to go under and there was another related person and that related person were to take the same position and refuse to replace security that we hope Arch replaced. [00:35:06] Speaker 00: and if they refuse to do so and we were faced with a drawing condition having been triggered and money owing on the table, then we would draw it, yes. [00:35:14] Speaker 00: If that related entity were to not do that and arrange to just replace the security, we wouldn't draw our security. [00:35:21] Speaker 05: But you don't have, it's your choice whether to draw the security, I assume. [00:35:25] Speaker 00: It's our choice, constrained by fiduciary obligations. [00:35:28] Speaker 05: Right, okay, okay, so maybe you'd say, because [00:35:32] Speaker 05: If it's the related entity, is it a related person? [00:35:36] Speaker 05: I don't know the term. [00:35:36] Speaker 05: Related person. [00:35:37] Speaker 05: So the related person says, we're going to take over the premium payments. [00:35:41] Speaker 05: Then the thing that the security is designed to guarantee is already being accounted for. [00:35:46] Speaker 00: What the security guarantees is the separate individual employer plan obligation. [00:35:50] Speaker 00: It's there to add a cost so that a company, when it chooses not to comply with the obligation to maintain an IEP, it doesn't just shift its burden to increase premiums. [00:35:59] Speaker 00: It makes that decision have a cost. [00:36:01] Speaker 00: That's what the premium is there. [00:36:02] Speaker 00: It's the performance bond to use. [00:36:04] Speaker 03: I didn't catch all of that. [00:36:08] Speaker 03: If I understood what you said earlier, [00:36:12] Speaker 03: ARCH could have somehow coordinated its conduct with the exiting employer. [00:36:18] Speaker 03: And avoided this problem? [00:36:20] Speaker 03: Is that correct? [00:36:20] Speaker 00: That's correct. [00:36:21] Speaker 02: Because you wouldn't have drawn down the security? [00:36:23] Speaker 02: Explain it again. [00:36:24] Speaker 02: That's the question I was going to ask. [00:36:26] Speaker 00: Certainly. [00:36:27] Speaker 00: So I can use an example. [00:36:28] Speaker 00: When ARCH sold the subsidiaries at issue here to Magnum, it required pursuant to contract that Magnum either replace or take over what was then ARCH's security, the bond that ARCH had posted. [00:36:39] Speaker 00: And Magnum did that. [00:36:40] Speaker 00: And then when Magnum sold the same subsidiaries to Patriot Coal, [00:36:43] Speaker 00: Patriot Coal ensured that effective on day one of its taking ownership of those entities, Patriot added those applicants to its existing letter of credit, and so we released the Magnum letter of credit. [00:36:53] Speaker 00: But what happened here, ARCH took over the IEP obligation, but it made no arrangement to either pay to take over, it arranged with Fifth Third Bank and Patriot to take over the obligation under the letter of credit or to post a new one, under which we would have just as a matter of prudence released the existing Patriot as we've done with Magnum and Patriot beforehand. [00:37:11] Speaker 00: Did that clarify, Your Honor? [00:37:12] Speaker 03: Yes, I think so. [00:37:14] Speaker 00: And just to clarify one thing, it's not that the funds that we've called from the security are not just an asset not being used to pay benefits. [00:37:22] Speaker 00: They're an asset that must be used to pay benefits for all beneficiaries of the plan. [00:37:26] Speaker 00: It's that as a matter of our fiduciary obligations, we can't use them [00:37:30] Speaker 00: just to provide a credit to ARCH, and as a matter of our fiduciary obligations, we have to use them for all beneficiaries, not just select beneficiaries. [00:37:38] Speaker 00: And the statute itself doesn't require that we devote the proceeds from a called letter of credit to paying benefits for any particular set of beneficiaries. [00:37:46] Speaker 00: We do that. [00:37:47] Speaker 03: But there are separate accounts maintained under the credit bankers trust, correct? [00:37:52] Speaker 03: The security, pardon me, the employers each have some sort of an account or sub-account at Bankers Trust which is credited or debited as the amounts needed in the letter of credit change. [00:38:06] Speaker 00: They have, it depends on which of the three statutory, statutory permitted forms they choose to use for security. [00:38:13] Speaker 00: If it's a letter of credit, it's an arrangement, they post collateral or money to the bank and the bank issues the letter of credit. [00:38:19] Speaker 00: If it's a cash escrow, [00:38:21] Speaker 00: There is an account that they set up pursuant to a trust agreement with an acceptable financial institution, and in that one it's a specific cash escrow account, but not necessarily. [00:38:29] Speaker 03: There's a series of cases involving mistakes by the employer over contributing. [00:38:35] Speaker 00: Sure. [00:38:36] Speaker 03: Do those all necessarily involve the cash accounts as opposed to a letter of credit? [00:38:42] Speaker 00: A series of cases under the Cole Act or RISA more generally? [00:38:45] Speaker 03: No, ERISA. [00:38:47] Speaker 00: Okay, I'm not aware. [00:38:50] Speaker 00: So under ERISA, ERISA doesn't have this specific security requirement, and this cash escrow bond letter of credit is specific to the 1992 plan under the Coal Act. [00:38:59] Speaker 00: So I'm not aware if those overpayment obligations are specific to just cash escrow. [00:39:07] Speaker 00: I can tell you that here, if an employer paid too much into a cash escrow, or as it happens on an annual basis, we adjust the amount of security. [00:39:15] Speaker 00: As security changes, we will reduce the amount. [00:39:18] Speaker 00: Or if they post a letter of credit, they can post a replacement letter of credit or adjust the amount down. [00:39:24] Speaker 03: Is that only on the anniversary, only on the annual renewal? [00:39:25] Speaker 00: Yeah, just as an administrative matter, it's done every year. [00:39:30] Speaker 00: You update the number of beneficiaries attributable to you, so that changes the amount and you can change the form. [00:39:36] Speaker 03: The risk contemplates, more generally, that if there's an overpayment, it can be adjusted within six months. [00:39:46] Speaker 00: Yes, but at least as far as I understand... It's actually within six months. [00:39:52] Speaker 03: The way it works is if the administrator denies the claim of overpayment, there's six months within which to appeal that. [00:40:00] Speaker 00: Understood, Your Honor. [00:40:01] Speaker 00: Here, we work with... [00:40:03] Speaker 00: It's a self-reporting obligation on the amount and the number of beneficiaries. [00:40:07] Speaker 00: And when the amount goes down, as unfortunately happens, as this population dwindles, we adjust and we agree to adjustments of the letter of credit. [00:40:15] Speaker 00: And the record shows, with respect to patriots, constant adjustments over time, downward adjustments. [00:40:21] Speaker 00: I see my time has expired. [00:40:22] Speaker 00: Thank you. [00:40:25] Speaker 02: Mr. Woodrum, we took you away over time, but you can take two minutes. [00:40:33] Speaker 03: Mr. Woodrum, why didn't Arch make the arrangements that would have avoided this problem? [00:40:40] Speaker 01: Because it would have required Arch to provide a letter of credit that had already been provided. [00:40:47] Speaker 03: What we were told is that you could avoid that by arranging with your predecessor in interest. [00:40:58] Speaker 03: to have the security essentially assigned to you? [00:41:02] Speaker 01: Well, the predecessor in interest was bankrupt, and the plan we informed... It was bankrupt, but there was a security interest over at the bank, right? [00:41:13] Speaker 03: It had a letter of credit and there was money on deposit. [00:41:16] Speaker 01: It was not a letter of credit that Arch was a party to, so the [00:41:26] Speaker 03: Does Ms. [00:41:26] Speaker 03: Schuster lead us astray in some way that other companies have avoided this situation? [00:41:30] Speaker 01: Well, Arch avoided it when it sold the company, because in exchange for part of the compensation for the sale of the company, one of the conditions was that the buyer would assume all of Arch's bonding obligations, not just the COAC, but reclamation bonds. [00:41:52] Speaker 01: other obligations associated with these entities. [00:41:55] Speaker 01: So the difference here is that the security that its purchaser or its successor to the purchaser magnum had posted had been non-pursuant to the private party agreements that it had, it was responsible for providing that security and it did. [00:42:16] Speaker 05: I'm not sure I understand the distinction between the two things that are being discussed, which is, one, you could have in some way assumed a letter of credit that Patriot already had. [00:42:27] Speaker 05: And the second would be that that letter of credit goes away and then you supply a new letter of credit. [00:42:30] Speaker 05: Either way, it's a letter of credit that goes to your books. [00:42:35] Speaker 05: And so in your, I take it from your standpoint, you're saying, I don't care if I assume the existing one or if I supply a new one, the bottom line is I shouldn't have to have anything to do with the letter of credit, period. [00:42:45] Speaker 01: At this, well, our twofold. [00:42:47] Speaker 01: One, we shouldn't have an obligation to, in and of the corporate self-arch, to provide security, letter of credit, or whatever format. [00:42:57] Speaker 01: The other is that that obligation was complied with. [00:43:01] Speaker 05: Right, now I get that. [00:43:02] Speaker 01: And so why would we, if a plan is taken, we inform the plan as soon as the subsidiaries [00:43:13] Speaker 01: were closed or shut down, as liquidated as part of the bankruptcy, we informed the plan that we would take over that liability. [00:43:22] Speaker 01: They didn't say anything about a letter of credit. [00:43:27] Speaker 01: All we knew was that a month or two later they foreclosed on the letter of credit and in their briefs they say they had a fiduciary obligation to do so because we weren't [00:43:37] Speaker 01: a party to that letter of credit. [00:43:39] Speaker 01: Patriot had arranged for it on behalf of those signatory companies and the letter of credit said that the plan can take the letter of credit if those operators cease to provide benefits and they did, but what [00:43:56] Speaker 01: What got missed by the plan or what the plan is glossing over is the fact that we immediately, because we also have a statutory duty to provide benefits, we took the beneficiaries on because we're a related person. [00:44:10] Speaker 01: That's the only reason we took them on is because... And you notified the plan. [00:44:13] Speaker 01: And we notified the plan that they'd never pay the dollar for these people. [00:44:16] Speaker 01: And did the notification say anything about security? [00:44:21] Speaker 01: Our notification of the plan that we were taking on the beneficiaries [00:44:25] Speaker 01: No, Your Honor, it just says, we just want to let you know that we are assuming the obligation to provide benefits to those retirees. [00:44:34] Speaker 01: In other words, you don't have to worry about it. [00:44:36] Speaker 01: They're not coming into your plan. [00:44:38] Speaker 01: We're taking them over. [00:44:40] Speaker 01: So the joint and several liability works both ways. [00:44:43] Speaker 01: If we have a joint and several obligation to provide benefits to the beneficiaries and to [00:44:52] Speaker 01: ensure that security is provided, then the fact that those two obligations were complied with, it benefits us as a related person because that's the source of the legal obligation in the first instance. [00:45:07] Speaker 01: It's because we don't have it, we didn't employ the people, but Congress said for these obligations, these specified obligations, you're secondarily liable. [00:45:17] Speaker 03: I think you said earlier on in the first argument that this was a [00:45:22] Speaker 03: case of first impression. [00:45:23] Speaker 03: It is, your honor. [00:45:24] Speaker 03: So why is that? [00:45:26] Speaker 03: What was different in this case from all the other transitions? [00:45:29] Speaker 01: Excellent question, and I'm glad to shed some light on it. [00:45:35] Speaker 01: Usually when there's a bankruptcy, the parent goes down as well, as happened in the patriot bankruptcy. [00:45:42] Speaker 01: The parent liquidated as well. [00:45:45] Speaker 01: So even with coal companies, usually when a letter of credit has been provided, [00:45:53] Speaker 01: All of the responsible entities are liquidated, and the beneficiaries come into the plan, and the plan takes the security. [00:46:01] Speaker 01: It's happened with a number of bankruptcies in recent years that have become very common in the coal industry. [00:46:07] Speaker 01: So this case is factually unusual, because in this instance, the entities that went bankrupt didn't include all related persons, because art still existed. [00:46:22] Speaker 01: and defined to be a related person based on a relationship from 1992. [00:46:25] Speaker 01: That's the trigger date for establishing that relationship. [00:46:31] Speaker 03: So the trustees were just doing in this case what they do in every case before, because in every other case there is no surviving LSO. [00:46:40] Speaker 01: Well, no, Your Honor, because in every other case they stepped in to provide the benefits, and so they were entitled. [00:46:48] Speaker 01: under the statute to take the security for the purpose for which it was provided, and that was to provide benefits to the retirees of the bankrupt company. [00:46:59] Speaker 01: What's the date on which they did that? [00:47:00] Speaker 01: Pardon? [00:47:01] Speaker 01: What's the date on which they did that? [00:47:03] Speaker 01: They did that in December. [00:47:05] Speaker 01: I don't recall the actual date. [00:47:07] Speaker 01: I think we provided notice in maybe October that we were going to take over. [00:47:13] Speaker 03: So the notice preceded the drawdown. [00:47:16] Speaker 01: The notice preceded the drawdown, correct. [00:47:18] Speaker 01: And our position was then, as it is now, that the drawdown is just a conversion of a letter of credit to cash, and the cash still provides you the same security that you had through the letter of credit, because you've yet to take in those beneficiaries. [00:47:39] Speaker 01: And if you take them in, then use the cash to provide your benefits. [00:47:43] Speaker 01: So that's the... That's not an option, taking them in. [00:47:48] Speaker 03: Right. [00:47:48] Speaker 03: You're still on the hook. [00:47:49] Speaker 01: We're on the hook. [00:47:50] Speaker 01: That's correct. [00:47:51] Speaker 01: And we'll be on the hook as long as they live and as long as Arch exists. [00:47:54] Speaker 01: So in effect the plan has taken a windfall and they're using it for a purpose for which the security was never intended to be provided and in fact it conflicts with the actual language. [00:48:09] Speaker 03: So at this point in their logic they invoke the anti-enormant rule. [00:48:13] Speaker 03: What's wrong with that? [00:48:15] Speaker 01: Well, because they haven't taken in the beneficiaries, and the beneficiaries are what provide them the basis. [00:48:22] Speaker 03: I understand that, but allocating the money to the premiums or security for which you're responsible or would be responsible, would have been responsible... Well, that wouldn't... They say violates the anti-Norman law. [00:48:37] Speaker 01: No, Your Honor, it doesn't, because the [00:48:40] Speaker 01: It's self-starting on their part to say that they've made it a plan asset. [00:48:45] Speaker 01: It wasn't a plan asset, and so couldn't violate the anti-inhermit law when it was a letter of credit. [00:48:51] Speaker 01: It's their decision and action characterizing it as no longer security, and therefore we could take it as an asset. [00:49:00] Speaker 01: So voila, Perissa says we have to use it for the beneficiaries. [00:49:05] Speaker 01: But nothing requires them. [00:49:08] Speaker 01: are really, in my view, even authorizes them to take the proceeds of that letter of credit into the plan as an asset. [00:49:17] Speaker 01: And their own plan document says that they receive security from its status as security, converting it to a plan asset when they enroll beneficiaries. [00:49:31] Speaker 01: And they haven't done it. [00:49:32] Speaker 01: So therefore, the anti-enormant rule is not applicable here. [00:49:38] Speaker 01: Anything else? [00:49:40] Speaker 02: Okay, thank you both. [00:49:41] Speaker 02: The case is submitted.