On August 21, 2013, the Bankruptcy Appellate Panel for the U.S. Court of Appeals for the Eighth Circuit (the “Panel”) issued a unanimous ruling in favor of Davis Polk’s client Patriot Coal Corporation (“Patriot”), a leading producer and marketer of coal in the eastern United States. The Panel reversed an earlier ruling of the U.S. Bankruptcy Court for the Eastern District of Missouri that would have allowed Peabody Energy Corporation (“Peabody”), the company that spun off Patriot in 2007, to reduce healthcare obligations to thousands of retirees as a result of Patriot’s bankruptcy. In the opinion, the Panel held that Peabody still must provide retiree healthcare to this group of retirees, as it had committed to do following the spinoff.

Davis Polk is advising Patriot in connection with its reorganization under Chapter 11 of the Bankruptcy Code and in significant litigation before the Bankruptcy Court. Patriot filed for chapter 11 bankruptcy protection in July 2012, citing excessive retiree medical and pension liabilities, weak coal markets and an unfavorable regulatory environment that had increased costs for coal producers and consumers. After months of unsuccessful negotiations with the United Mine Workers of America (the “UMWA”), Patriot filed a motion for relief under the bankruptcy code in March 2013, seeking to secure necessary savings with respect to active employee compensation and retiree healthcare. Patriot also sought a declaratory judgment that Peabody could not use Patriot’s bankruptcy to reduce its obligations to thousands of retirees whose healthcare costs Peabody committed to pay after the spinoff. Following a five-day trial in April 2013, the Bankruptcy Court issued a strongly worded 102-page opinion granting Patriot’s motion with respect to the UMWA in its entirety. At the same time, the Bankruptcy Court issued a separate decision granting summary judgment to Peabody in connection with the dispute over Peabody’s healthcare obligations.

Patriot promptly appealed the decision concerning Peabody to the Panel, and made a successful motion to expedite the appeal given the importance of the issues. As noted above, the Panel reversed the Bankruptcy Court’s decision and held that Peabody remains responsible for these healthcare obligations. In addition, Patriot reached a settlement with the UMWA to resolve outstanding disputes and ensure that Patriot will obtain the cost savings and labor stability that are critical to the company’s survival. These developments have positioned Patriot to successfully emerge from chapter 11 as a viable company that will continue to provide jobs and benefits to thousands of families.

The Davis Polk team handling the appellate litigation included partner Elliot Moskowitz (who argued the appeal), counsel Jonathan D. Martin, and associates Andrew S. Gehring, Deryn Darcy and Craig M. Reiser. The broader Davis Polk team working on the Patriot bankruptcy case includes, from the bankruptcy group, partners Marshall S. Huebner and Brian M. Resnick and associates Michelle M. McGreal, Kevin J. Coco and Angela Libby, and from the litigation group, partners Benjamin S. Kaminetzky and Amelia T.R. Starr, counsel Michael J. Russano, and associates Lara Samet, Rick Estacio and Elyse Glazer, as well as numerous attorneys across various practice areas of the firm. All members of the Davis Polk team are based in the New York office.

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