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In re Chateaugay Corp.

decided: December 12, 1989.

IN RE CHATEAUGAY CORPORATION, REOMAR, INC., THE LTV CORPORATION, ET AL., DEBTOR. IN RE LTV STEEL COMPANY, INC. AND TUSCALOOSA ENERGY CORPORATION, DEBTORS. UNITED MINE WORKERS OF AMERICA, APPELLANT,
v.
LTV STEEL COMPANY, INC. AND TUSCALOOSA ENERGY CORPORATION, APPELLEES



The United Mine Workers of America appeal from the order of the United States District Court for the Southern District of New York (Wood, J.), affirming the order of the United States Bankruptcy Court for the Southern District of New York (Lifland, B.J.), which declared that appellees, LTV Steel Company, Inc. and Tuscaloosa Energy Corporation, had no further obligations under the successorship provision of the National Bituminous Coal Wage Agreement of 1984. Affirmed.

Cardamone and Mahoney, Circuit Judges, and Milton Pollack, District Judge.*fn*

Author: Cardamone

Cardamone, Circuit Judge:

This appeal arises out of a sale of the assets of a coal mine by appellees, LTV Steel Company, Inc. (LTV Steel) and Tuscaloosa Energy Corporation (Tuscaloosa or employer), its wholly-owned subsidiary, during the course of their reorganization as debtors under Chapter 11 of the Bankruptcy Code. Its resolution depends upon what is meant by the word "operations." That word is used in Article I of the National Bituminous Coal Wage Agreement of 1984 (Coal Wage Agreement or Agreement), to which appellees and appellant United Mine Workers of America (union) were signatories, and which in pertinent part provides:

This Agreement shall be binding upon all signatories hereto, . . . and their successors and assigns. In consideration of the Union's execution of this Agreement, each Employer promises that its operations covered by this Agreement shall not be sold, conveyed, or otherwise transferred or assigned to any successor without first securing the agreement of the successor to assume the Employer's obligations under this Agreement. (emphasis added).

The single question presented is whether the phrase "its operations" covers a mine closed in good faith and sold by a seller that retains no financial interest in any potential future mining activity at the site, so that the purchaser of the mine succeeds to the seller's obligation under the Agreement. To extract its meaning, like "winning" the coal, requires some effort and analysis, to which we now set ourselves.

FACTS

LTV Steel and Tuscaloosa are both wholly-owned subsidiaries of LTV Corporation. LTV Steel is a fully-integrated steel producer and one of the largest steel producers in the United States. Among its properties is Republic Kentucky Mine, a coal mine located on 3,000 acres in Pike County, Kentucky, with proven coal reserves of approximately 5.5 million tons. Tuscaloosa is the operating company engaged in the production of coal. It conducted drift mining operations at the Republic Kentucky Mine, producing and selling high volatile metallurgical coal to LTV Steel for use in its coke-making operations. Beginning in 1980 coal was in oversupply in the market, and since that time the cost of producing a ton of coal at the mine has substantially exceeded its market price. By 1986 coal cost $49.65 per ton to produce and the average market price was only $31.00 per ton -- an $18.65 per ton shortfall. As a result, in April of that year Republic Kentucky Mine was idled because it could not be operated profitably. Tuscaloosa's mine workers were laid off, and its mining equipment was withdrawn. Following closure, Tuscaloosa was obliged to seal the mine entrances, raze buildings, reclaim refuse piles and complete grading of the property. These closure obligations were estimated to cost $3.7 million and to require two years to complete. Subsequent to idling the mine, production costs and market prices have remained substantially the same as they were in 1986.

The former coal miner employees of Republic Kentucky Mine are members of and represented by the United Mine Workers, an unincorporated labor association. The union is a party to the Coal Wage Agreement with the Bituminous Coal Operator's Association, a multiemployer bargaining unit. Tuscaloosa also is a party to the Agreement, and its obligations to its hourly employees were governed by the Agreement at the time the mine shut down. The employer and union have been parties to successive collective bargaining agreements since 1974. On November 20, 1987 the employer notified the union that it was going out of the coal mining business and did not intend to enter into a new collective bargaining agreement. The Coal Wage Agreement, the terms of which are the subject of this appeal, expired on January 31, 1988.

The LTV Corporation and 66 of its subsidiaries, including LTV Steel and Tuscaloosa, filed petitions in the United States Bankruptcy Court for the Southern District of New York (Lifland, B.J.) for reorganization under Chapter 11 of the Bankruptcy Code on July 17, 1986. In October 1988 LTV Steel and Tuscaloosa entered into an agreement to sell the mine assets at Republic Kentucky Mine to Elkhorn Development Corp. (Elkhorn) for $5.1 million plus Elkhorn's assumption of the expenses of closing the mine. LTV Steel and Tuscaloosa applied several months later to the bankruptcy court for an order approving the sale. Because the acquisition agreement required Tuscaloosa to obtain either a release from the union or a final, nonappealable judgment by a court of competent jurisdiction declaring that Tuscaloosa had no further obligation under Article I of the subject Agreement, Tuscaloosa sought the requisite declaration from the bankruptcy court.

The union obtained a stay enjoining the employer from seeking such a declaration, alleging that the matter was within the exclusive jurisdiction of the National Labor Relations Board pursuant to the National Labor Relations Act, 29 U.S.C. ยง 151 et seq. (1982), and that the employer still had obligations under Article I of the Coal Wage Agreement. The district court judge vacated the stay on January 11, 1989 ruling that the issue raised was not one of federal labor law but simply one of contract interpretation. In re Chateaugay Corp., 89 Civ. 0089 (S.D.N.Y. Jan. 11, 1989) (endorsed memorandum).

At a bankruptcy court hearing and auction on January 12, 1989 Jenkins Letcher Coal Corporation outbid Elkhorn for the mine assets with a bid of $6.3 million, and it assumed Tuscaloosa's closure obligations. The union again objected to the sale insofar as Tuscaloosa sought an order declaring it free from its obligations under the Coal Wage Agreement. In an order dated January 12, 1989, Bankruptcy Judge Lifland ruled that no obligation remained under Article I. He reasoned that the sale of a mine which had been idled for business reasons and without any showing of bad faith was not the sale of its "operations" within the meaning of Article I. The union appealed to the United States District Court for the Southern District of New York (Wood, J.), which on May 30, 1989 affirmed the bankruptcy court's order for the reasons stated by the bankruptcy court. In Re Chateaugay Corp., 89 Civ. 1377 (S.D.N.Y. May 25, 1989). This appeal followed.

Discussion

The United Mine Workers argues that the bankruptcy and district courts erred in interpreting the term operations in the Agreement as referring only to mines that are active. First, they assert that since the word operations is used throughout the Agreement to refer to both open and closed mines, it should not be construed in Article I to apply only to open mines. The union further contends that the term was used in order to broaden the scope of the collective bargaining agreement, not to restrict its application solely to active facilities, and asserts that operations was ...


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