On May 29, Patriot Coal (Patriot) became the third major debtor in the last year to receive court approval to modify union benefits or reject a CBA under sections 1113 and 1114 of the Bankruptcy Code. Following similar rulings in the Hostess and AMR Corporation bankruptcies, Judge Kathy Surratt-States granted Patriot authorization to modify certain benefits and reject collective bargaining agreements. In a 102-page opinion, she held that Patriot had made the requisite showings that: (i) the proposed modifications or rejection are necessary for the company to emerge from bankruptcy successfully; (ii) the balance of the equities favors rejection; and (iii) the union refused to accept the proposed modifications without good cause. Her decision ultimately hinged largely on whether the modifications were necessary for the company to emerge from bankruptcy. Judge Surratt-States held “There is no dispute that for the Debtors’ survival, concessions are necessary.” She proceeded to analyze the business need for each of the major modifications requested by the debtors and held those changes were necessary for successful emergence.
The ruling continues a recent trend allowing debtors to reject or modify union agreements, despite the heightened standard under sections 1113 and 1114 of the Bankruptcy Code. In light of this trend, unions may have less leverage in chapter 11 than previously imagined. This could pressure unions to consent to modifications before or during bankruptcy and drive debtors and creditors toward more aggressive positions against the unions. In re Patriot Coal Corp., Bankr. Case No. 12-51502-659 (Bankr. E.D. Mo. May 29, 2013). Opinion.