Amicus Curiae Brief — Eastern Enterprises v. Apfel

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No. 97-42 i}

CLERK

IN THE

Supreme Court of the Anited States

OcTOBER TERM, 1997

Eastern Enterprises,

Petitioner,

Vv.

Kenneth S. Appel, Commissioner

of Social Security, et al.,

Respondents.

On Writ of Certiorari to the United States

Court of Appeals for the First Circuit

Brief Amicus Curiae of

Freeman United Coal Mining Company

in Support of Respondents

KATHRYN S. MATKOV

Counsel of Record

JOHN A. WASHBURN

BRIAN B. GILBERT

GOULD & RATNER

222 North LaSalle Street

Suite 800

Chicago, Illinois 60601

(312) 236-2003

January 20, 1998 Counsel for Amicus Curiae

Midwest Law Printing Co., Chicago 60610, (312) 321-0220

a ,

BEST AVAILABLE COPY

TABLE OF CONTENTS

PAGE

TABLE OF AUTHORITIES .................45. ii

STATEMENT OF INTEREST ................. 1

TY ow eu ck cd dv eudoeceené 2

GE otis ons wenn ne enckewheeds ens ees 4

A. THE COAL ACT WITHSTANDS SCRUTINY

UNDER THE DUE PROCESS CLAUSE BE-

CAUSE IT RATIONALLY ALLOCATES THE

FINANCIAL BURDENS OF FUNDING UMWA

BENEFITS AMONG THOSE PARTIES WHO

MOST LOGICALLY SHOULD BEAR SUCH

COSTS—THE FORMER EMPLOYERS WHO

PARTICIPATED IN THE CREATION OF THE

COAL INDUSTRY'S MULTI-EMPLOYER RE-

TIREE BENEFITS SYSTEM ............... 4

1. Pre-Coal Act History of Coal Industry

Provided Rationale for Adoption of the

GD. 6 Chandi nen 660% 28 ¥ed wwe ce 4

2. Coal Act Is a Rational Response to the

Problems Faced by the Coal Industry,

Combined Fund and Prior Fund Bene-

so WE 0 6 oe VEC ES CO ESC EH eee oe 6

B. THE IMPOSITION OF LIABILITY UNDER

THE COAL ACT ON PETITIONER IS NOT A

“TAKING” UNDER THE JUST COMPEN-

CST EEE Cec cc ces nendeseseccese 8

GE Sv ch cet we ibe te deve dctb ett 11

ii

TABLE OF AUTHORITIES

Cases PAGE

Blue Diamond Coal Co., In Re, 79 F.3d 516

(6th Cir.), cert. denied, 117 S. Ct. 682 (1996) .. 10

Concrete Pipe and Products of California v.

Construction Laborers Pension Trust for

Southern California, 508 U.S. 602 (1993) ..... 10

Connolly v. Pension Benefit Guaranty Corp.,

RE Sic Cecssescencecececcs 8

Davon, Inc. v. Shalala, 75 F.3d 1114

(7th Cir.), cert. denied, 117 S. Ct. 50 (1996) ... 11

Chateaugay Corp., In Re, 53 F.3d 478

(2d Cir.), cert. denied, 116 S. Ct. 298

Dh biota een as bene eee se 9000es 8, 10, 11

Pension Benefit Guaranty Corp. v. R.A. Gray

& Co., 467 U.S. 717 (1984) ... 6... eee eee 4

United States v. Northeastern Pharmaceutical

& Chemical Co., 810 F.2d 726 (8th Cir.),

cert. denied, 108 S. Ct. 146 (1986) .......... 10

Usery v. Turner Elkhorn Mining Co.,

PE eee aden eccesecccees 4,8

Statutes

The Coal Industry Retiree Health Benefit Act

of 1992, 26 U.S.C.A. § 9701-22 (West Supp.

i eek eee ab NS ebds cececece 1

Miscellaneous

Coal Commission Report: A Report to the

Secretary of Labor and the American

People (Nov. 1990) ........--++eee5: 5, 6, 7,9

1

STATEMENT Of INTEREST’

The amicus, Freeman United Coal Mining Company

(“Freeman”), and its predecessors have been mining coal

in Illinois since 1872. Freeman, which is a subsidiary of

General Dynamics Corporation, currently operates two

deep mines and one surface mine in the Central IIlinois

basin, and produces approximately 4.5 million tons of

coal annually. The Company employs approximately 500

people in the State of Illinois. Although Freeman is not

presently a member of the Bituminous Coal Operators

Association (“BCOA”) or a signatory to the new 1998

National Bituminous Coal Wage Agreement (““NBCWA”)

with other BCOA members, Freeman and its predeces-

sors were until recently members of the BCOA and were

signatories to all previous NBCWA’s executed through

and including the 1993 NBCWA.

Prior to the implementation of The Coal Industry Re-

tiree Health Benefit Act of 1992, 26 U.S.C.A. § 9701-22

(West Supp. 1997) (the “Coal Act”), Freeman contributed

to the UMWA 1950 Benefit Plan and Trust and the

UMWA 1974 Benefit Plan and Trust and the predecessor

UMWA Welfare and Retirement Fund of 1950 (“Prior

Funds”).

Freeman experienced adverse economic conditions in

the late 1980’s and early 1990's as a result of a change

' Counsel for all parties have consented to the filing of this

amicus brief, and amicus has filed those consents with the

Clerk of this Court in accordance with Rule 37.3. No person

other than amicus and its counsel made a monetary contri-

bution to the preparation or submission of this brief. Rule

37.6. The brief was not authored in whole or in any part by

counsel for a party. Rule 37.6.

in the demand for Illinois basin coal and the soaring

costs of required contributions to the Prior Funds. These

soaring costs were a direct result of severe inflation in

health costs and the shrinking universe of companies in

the coal industry available to fund these costs. The Coal

Act was a direct response to this dilemma faced by Free-

man and other similarly situated companies to insure

that bargained-for benefits guaranteed to the beneficia-

ries of the Prior Funds would be paid despite insufficient

contributions.

The amicus agrees with Respondents that the Coal Act

(a) is a rational exercise of Congress’ legitimate authority

and thus withstands scrutiny under the Due Process

Clause, and (b) does not constitute a taking of property

under the Just Compensation Clause.

STATEMENT OF FACTS

Freeman was created by the merger of Freeman Coal

Company and United Electric Coal Companies in 1975.

At the height of its operations in 1982, Freeman oper-

ated eight (8) coal mines and produced coal at a rate of

nearly eight million tons per year. As a signatory to

previous NBCWAs, Freeman made contributions to the

Prior Funds from their inception. Prior to the Coal Act,

Freeman’s contributions to the Prior Funds were based

upon an assigned hourly rate multiplied by the number

of man hours worked by UMWA miners for the applica-

ble period and/or a contribution rate per ton of coal pro-

duced. Between January of 1988 and January of 1993

when the Coal Act was implemented, Freeman’s hourly

contribution rate increased from $1.91 to $3.67. This con-

stituted a staggering increase of in excess of 92% during

3

this five (5) year period. As the Coal Commission found,

this increase was the direct result of soaring health costs

and fewer responsible operators in the coal industry

available to fund these costs. Before the adoption of the

Coal Act, Freeman was also required to pay benefits

costs for individuals that were never employed by Free-

man.

This increase in contribution rates occurred during a

time when Freeman was experiencing financial pressures

due to the fact that markets for Illinois basin coal were

shrinking as a result of Clean Air Act legislation and

increasing competition from Western coal sources.

Under the Coal Act, Freeman is currently assigned 796

beneficiaries covered by the UMWA Combined Fund

(“Combined Fund”). Freeman’s contributions in the cur-

rent year will total $1,791,289.68, which will constitute

approximately a 50% decrease from the contributions

Freeman was making to the Prior Funds prior to the

Coal Act. Although health costs continue to soar, the

beneficiaries assigned to Freeman all constitute former

employees of Freeman and their dependents. At present,

Freeman is paying for its own employees and former em-

ployees, not for those of other companies, like Eastern,

whom by their own volition have chosen to no longer

operate in the coal industry.

An increase in Freeman’s required fund contributions

to the pre-Coal Act levels, in the face of the difficulty of

surviving any extended strike and shutdown at this time

similar to that experienced by The Pittston Company in

1992 over issues related to benefits contributions, could

threaten the future viability of the company.

4

ARGUMENT

A.

THE COAL ACT WITHSTANDS SCRUTINY UNDER THE

DUE PROCESS CLAUSE BECAUSE IT RATIONALLY

ALLOCATES THE FINANCIAL BURDENS OF FUNDING

UMWA BENEFITS AMONG THOSE PARTIES WHO

MOST LOGICALLY SHOULD BEAR SUCH COSTS—THE

FORMER EMPLOYERS WHO PARTICIPATED IN THE

CREATION OF THE COAL INDUSTRY’S MULTI-EM-

PLOYER RETIREE BENEFITS SYSTEM

To succeed on its claim, Petitioner must establish that

Congress “acted in an arbitrary and irrational” manner

Usery v. Turner Elkhorn Mining Co., 428 U.S. 1, 15

(1976) in enacting the Coal Act. If the Coal Act:

“is supported by a legitimate legislative purpose

furthered by rational means, judgments about

the wisdom of such legislation remain within the

exclusive province of the legislative and executive

branches.” Pension Benefit Guaranty Corp. v.

R.A. Gray & Co., 467 U.S. 717, 729 (1984).

Even where a statute is applied retroactively or has

retroactive effects, such legislation should be upheld if

“the legislation is itself justified by a rational legislative

purpose.” Jd. at 730.

1. Pre-Coal Act History of Coal Industry Provided

Rationale for Adoption of Coal Act

A review of the history of the coal industry over the

period of time from the 1940’s to the passage of the Coal

Act does show that Congress was neither arbitrary nor

irrational in enacting this legislation. Petitioner and

certain of its amici would like this Court to forget this

history and conclude that each NBCWA was negotiated

5

in a vacuum for a finite + eriod of years without any view

toward the future or any expectation of ongoing responsi-

bility on behalf of coal operators. This view of the in-

dustry is jaundiced and inaccurate.

As the Coal Commission found, the provision of health

and welfare benefits to miners has been a critical issue

for labor and management since the 1940’s. Coal Com-

mission Report: A Report to the Secretary of Labor and

the American People (Nov. 1990) at 29. With the shut-

down of the coal industry in the 1940’s, the UMWA made

it clear that its members would no longer report to work

without the provision of health and welfare benefits to

miners and their dependents. Although, as Petitioner

points out in its brief, the NBCWA’s contained provisions

regarding the rev<cation, termination or amendment to

benefits, Brief for Petitioner at 5, amicus believes that it

was clear to every company operating in the industry

that subsequent NBCWAs or other agreements with the

UMWA would inevitably provide for retiree medical

benefits, in some form or another, for miners and their

dependents. For Petitioner to claim that it exited the

coal industry in 1965 without any inkling that such

benefits would remain a part of the NBCWA package is

simply disingenuous.

It must be remembered that the UMWA Welfare and

Retirement Fund of 1946 (“1946 W&R Fund”) instituted

the first union health and welfare fund. The Krug-Lewis

Agreement which created the 1946 W&R Fund was

reached only after a protracted and bitter strike in which

control of the mines was assumed by the Federal govern-

ment. Succeeding NBCWAs modified and furthered the

concept of a funded health and welfare fund. Although

each preceding NBCWA had contained provision for the

6

funding of these benefits, the 1978 NBCWA finally codi-

fied what the industry had been pointing towards for

many years—an assurance of health care to “orphaned”

miners (retired miners whose last employer was no

longer in business or otherwise ceased contributing to

the funds) and an obligation of signatories to maintain

benefits and to continue to contribute so long as the

operator remained in business (the so called “evergreen

clause”). In fact, the Coal Commission found that guar-

anteed health care benefits for miners had, many years

previous to the 1978 NBCWA, already become a well

entrenched expectation of miners and their dependents.

Coal Commission Report at 1.

The crisis that lead to the adoption of the Coal Act was

caused by a multitude of factors, the most significant

being the increasing cost of health care coupled with the

continuing contraction of the coal industry. Coal Com-

mission Report at 2. Given the number of miners and

dependents receiving benefits under the Prior Funds, the

increasing cost to provide such benefits and the shrink-

ing base of companies available to fund such costs, it

became clear that something needed to be done. The

Pittston strike in 1992 brought these issues to a head

and Congress stepped in to investigate the crisis and

develop a solution.

2. The Coal Act Is a Rational Response to the Prob-

lems Faced by the Coal Industry, Combined Fund

and Prior Fund Beneficiaries

Congress was faced with the prospect of either (a)

doing nothing, which would have increased the chaos in

the coal industry, led to more strikes, left in excess of

7

100,000 individuals without health coverage and poten-

tially crippled the coal industry, or (b) devising a plan to

fund these benefits through the natural life cycle of the

Prior Funds. Congress investigated several mechanism’s

including an industry wide assessment or the “pay for

your own” plan that it eventually adopted. Coal Commis-

sion Report at 61-69.

By assigning fund beneficiaries to current and former

NBCWA signatories who employed such beneficiaries,

Congress selected a scheme that was fair and equitable.

Responsibility for the payment of benefits would at least

fall on companies that had a clear nexus with the cov-

ered individuals and profited from the employment of

such individuals while they were members of the work

force. In addition, by creating a tiered approach for the

assignment of beneficiaries, Congress insured not only

that plan beneficiaries would be assigned to the company

that had the strongest nexus with such beneficiary, but

also that the number of unassigned beneficiaries would

be kept to a minimum. This would reduce the burden

placed on existing coal operators to fund the costs of

these unassigned beneficiaries, which was one of the pri-

mary causes of the crisis in the first place. The resulting

framework is certainly more rational than the Petition-

er’s “solution” which, if accepted, would increase the

number of “orphaned” miners and shift the cost of paying

health benefits for such miners and their dependents to

companies, like Freeman, that never employed, and had

no connection whatsoever with, such miners.

Perhaps, a better scheme could have been developed by

Congress, although it is difficult to imagine what such a

system might look like. Nevertheless, to withstand Due

Process scrutiny, Congressional solutions need only be

8

rational and not arbitrary. Turner Elkhorn, 428 U.S. at

19. Clearly, given the historical background and the

problems identified to be resolved, the Coal Act is a

rational response.

THE IMPOSITION OF LIABILITY UNDER THE COAL

ACT ON PETITIONER IS NOT A “TAKING” UNDER

THE JUST COMPENSATION CLAUSE

Three factors are of particular significance in determin-

ing the existence of a Fifth Amendment “taking”: (1) the

economic impact of the regulation on the claimant; (2)

the extent to which the regulatory action interferes with

reasonable investment-backed expectations; and (3) the

character of the government action. Connolly v. Pension

Benefit Guaranty Corp., 475 U.S. 211, 225 (1986).

With respect to economic impact, the appropriate

“yardstick of economic impact is proportionality.” In Re

Chateaugay Corp.,.53 F.3d 478 (2d Cir.), cert. denied,

116 S. Ct. 298 (1995). As discussed above, the frame-

work adopted by the Coal Act is a perfectly proportional

scheme. Stated simply, each coal operator or former coal

operator that were signatories to NBCWAs are required

to pay for their own former employees and their depen-

dents. Beneficiaries that are unassigned are paid for pro-

portionately by all contributers to the fund. This places

liability for funding exactly where it should be, on those

companies that employed the fund beneficiaries and who

participated as employers in the creation of the multi-

employer benefit system. In contrast, the pre-Coal Act

scheme was grossly disproportionate in that it placed

liability for all beneficiaries on the few remaining com-

9

panies in the coal industry, even though they had no

nexus with these beneficiaries.

Petitioner argues that proportionality is not served

since Petitioner did not “contribute to the financial prob-

lems of the Benefit Plans” or promise lifetime health

benefits to miners. Petitioner Brief at 42. Petitioner con-

veniently divorces itself from this class of companies,

ignoring the fact that the crisis in the funds is not some-

thing that developed over night but had its roots back in

the days when Petitioner and others participated as con-

tributor in the creation of the multi-employer benefits

system. See Coal Commission Report at 29. Funding has

always been an issue for health and welfare benefits

since the 1940’s. As stated earlier, at the time Eastern

and other operators left the BCOA, it was only reason-

able to expect that the continuation of these benefits for

miners in the future would be a linchpin of any manage-

ment/labor compact. The main cause of the ensuing fi-

nancial crisis was increasing health care costs coupled

with fewer companies available in the coal industry to

bear these costs. Coal Commission Report at 2. These

developments did not arise as a result of any act of

Freeman or the BCOA. Petitioner wants to retain all of

the benefits from coal operations and earlier NBWCA’s

(such as the receipt of significant dividends from EACC

over the years), but does not want to bear any corre-

sponding responsibility. Thus, Petitioner’s position favors

disproportionality and is consequently inequitable.

Certain of Petitioner's amici argue that the Coal Act

is a “taking” because certain of the former operators

affected by the Coal Act cannot afford to make the pay-

ments required thereby. See Brief Amici Curiae of Unity

10

Real Estate Company, et al. Yet, as long as the Coal

Act’s application is proportionate, as is demonstrably the

case, it should withstand scrutiny under the “takings”

clause. Similar requirements of funding or cost sharing

under the Multiemployer Pension Plan Amendments Act

and the Comprehensive Environmental Response, Com-

pensation Liability Act of 1980 have not rendered such

statutes unconstitutional. See Concrete Pipe and Prod-

ucts of California v. Construction Laborers Pension Trust

for Southern California, 508 U.S. 602 (1993); and United

States v. Northeastern Pharmaceutical & Chemical Co.,

810 F.2d 726 (8th Cir.), cert. denied, 108 S. Ct. 146

(1986) at 734.

With respect to the second prong of the “takings”

analysis, Petitioner argues that there was no way to

foresee the Coal Act, the guarantee of lifetime benefits or

the imposition of liability on former employees. As dis-

cussed above, however, Petitioner simply ignores history

including the importance of the coal industry to the

national economy, the fact that miners clearly would not

stand for operators not providing these benefits (as evi-

denced by the 1940’s shutdown and the negotiation of

each NBCWA since), and the Federal government’s will-

ingness to get involved to insure health care benefits for

retired miners. In Re Chateaugay Corp., 53 F.2d at 495-

496; In Re Blue Diamond Coal Co., 79 F.3d 516 at 525-

526 (6th Cir.), cert. denied, 117 S. Ct. 682 (1996).

Finally, the Coal Act was enacted by Congress in

response to labor disputes in the coal industry to avoid

disruption of interstate commerce and to insure that a

significant group of individuals, who had reason to ex-

pect a different result, are not left without privately

11

funded health care benefits (which, if this occurred,

would certainly increase the burden on the government

and the rest of the country to fund these costs). The Coal

Act is intended to promote the common good by “adjust-

ing the benefits and burdens of economic life” and is

therefore not the type of governmental action that would

be deemed a “taking” of property. In Re Chateaugay

Corp., 53 F.2d at 496, Davon, Inc. v. Shalala, 75 F.3d

1114 (7th Cir.), cert. denied, 117 S. Ct. 50 (1996).

CONCLUSION

The judgment of the United States Court of Appeals

for the First Circuit should be affirmed.

Respectfully submitted,

KATHRYN S. MATKOV

Counsel of Record

JOHN A. WASHBURN

BRIAN B. GILBERT

GOULD & RATNER

222 North LaSalle Street

Suite 800

Chicago, Illinois 60601

(312) 236-2003

January 20, 1998 Counsel for Amicus Curiae