Opposition Brief — Blue Diamond Coal Co. v. Chater, 117 S. Ct. 682 (1997) (No. 96-431)

c . —“y

Supreme Court, U.S,

(4) FILER

NOV SO (99@

No. 96-431

In the Supreme Court of the Gee Sates —— |

OCTOBER TERM, 1996

BLUE DIAMOND COAL COMPANY, PETITIONER

v.

SHIRLEY S. CHATER,

COMMISSIONER OF SOCIAL SECURITY, ET AL.

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

BRIEF FOR THE FEDERAL RESPONDENT

IN OPPOSITION

WALTER DELLINGER

Acting Solicitor General

FRANK W. HUNGER

Assistant Attorney General

DOUGLAS N. LETTER

Scott R. MCINTOSH

Attorneys

Department of Justice

Washington, D.C. 20530-0001

(202) 514-2217

aaa aa i)

QUESTION PRESENTED

Whether the Coal Industry Retiree Health Benefit

Act of 1992, 26 U.S.C. 9701 et seq., violates the Just

Compensation Clause of the Fifth Amendment as

applied to petitioner.

(I)

TABLE OF CONTENTS

Page

Opinions below .........ssssessesererscsesenennenensnserarersennenenannenes 1

Jurisdiction ........cccsceeceesseecessenscesseeeseesesnneneneeseseeesenenenens 2

Statement ..............cscscceeeceesesseseeeeeeneseensennenennneeeanenseneneess 2

AYQUMENt ......csccsseessessseessenererneesennannenannrenenens sibeounsaciabs il

CONClUSION .............ecseeeeeeseseeseeseeeeeeeseeeeeneneneneneeneneneeenerees 22

TABLE OF AUTHORITIES

Cases:

Barrick Gold Exploration, Inc. v. Hudson, 47 F.3d

832 (6th Cir.), cert. denied, 116 S. Ct. 64 (1995) ...... 11

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

denied, 116 S. Ct. 298 (1995) .......ccreseeeerreneeenes 11, 15, 17

Concrete Pipe & Prods. of California, Inc. v. Con-

struction Laborers Pension Trust, 508 U.S. 602

(RBBB) ccscccecccdscovesstnesecccessccnecsnvevcessces 10, 12, 14, 15, 21

Connolly v. Pension Benefit Guaranty Corp.,

475 U.S. 211 (1986) ..........seeeeeeeeee 10, 14, 15, 17, 18, 21-22

Davon, Inc. v. Shalala, 75 F.3d 1114 (7th Cir.),

cert. denied, 117 S. Ct. 50 (1996) ........... 4, 11, 15, 16, 21

Lindsey Coal Mining Co. v. Chater, 90 F.3d 688

(Bd Cir. 1996) ......cccssceeseessreeesneeeenneenessenneesesnasenensen® ll

National R.R. Passenger Corp. v. Atchison, T. &

S.F. Ry., 470 U.S, 451 (1985) ....esceseesenseneseersneeeneens 13

Pennell v. City of San Jose, 485 U.S. 1 (1988) ......... 21

Templeton Coal Co. v. Shalala, 882 F. Supp. 799

(S.D. Ind. 1995), aff’d sub nom. Davon, Inc. v.

Shalala, 75 F.3d 1114 (7th Cir.), cert. denied, 117

S. Ct. 5O (1996) ..........cesseeeseeseceeeeneeeeeeneeseeeeeneeeeenennens 20

United States v. Johnston, 268 U.S. 220 (1925) ...... 19

United States v. Sperry Corp., 493 U.S. 52

(1989) .......cscccscscessrscssvsseseecenssessnrensessssesnsessnsesaners 13, 15

(IIT)

IV

Constitution and statutes: Page

U.S. Const.:

Amend. V:

Due Process Clause ....cc.cccsccccsccsscsscesnsccssvccessensoese 8,13

Just Compensation Clause ............+. 8, 11, 18, 17, 21, 22

Coal Industry Retiree Health Benefit Act of 1992,

2B U.S.C. 9701 et S€q. ........eseeceeereeeeesesseeeennseeneeeneeseees 1,2

QB U.S.C. GTOM D1) ........-serececeeeecesesssececeeensnnceees 6

26 U.S.C. 9TO1(D)(B) .........-sccecerssessceeeeresecceeseeseenes 6

QB U.S.C. QTOU(C)(1) .......ceceersveceeercenresseecssereeeceones 6

26 U.S.C. 9702(a)(1)-(2) .....ceceeeeeeeeeeeeeenereenneeneneeees 6

QB U.S.C. GTO2(AN2) .......cceevesceresecncceceseccoreseserenee 14

26 U.S.C. GTOB(D)(1) ...........ccccerrecceererereceecessssenenes 6, 14

26 U.S.C. 970B8(e)-(f) ........ccseseeeeeesececeessereneeeseesenes 6

2B U.S.C. GTOB(L) .....cccccccrrcersesccsececccesessescseccseecenes 14

DE ULS.C. GTOE ..cccccrccssccccscsssaccvccssccsccscseresssecsosseces 6

26 U.S.C. 9705(a)-(D) ........esseeceeeeereeseeseeeseenencenenens 7

2B U.S.C. 9706(a) ........secccssssecorccresecseensscsonecsesonsess 6, 7

26 U.S.C. 9706(a)(1)-(3) .......ceccereereeeeeeeeeeeeneenenenee 7

BB UBC, GTID ccccccccccrcsesecesccsoscooccscsuncevensseasenssovase 6

Employee Retirement Income Security Act of 1974,

29 U.S.C. 1001 et Seq. ......cccereccserseeseeneceenensnenenseeeenees 3

Energy Policy Act of 1992, Pub. L. No. 102-486,

Tit. XIX, Subtit. C, 106 Stat. 3036 ..........ccceeseeeereees 5

§ 19142(a), 106 Stat. 3037 .......cccesecerernteereneeeeeeess 5

§ 19142(b), 106 Stat. 3037 ......cceeeeeeeeeseseeeeeesereeneeees 5

Multiemployer Pension Plan Amendments Act of

1980, Pub. L. No. 96-364, 94 Stat. 1208 ........ccceeeeeeeee 10

BO U.S.C. 1282(h) ....ccccccccrsssscccscccscersvccccecssensecsssssonsenss 7

Miscellaneous:

Coal Commssion Report: A Report to the Secre-

tary of Labor and the American People (Nov.

EDO) cvccassnscicciczancahvesioneceseqeanaiebcncnspansnseotcecensnontses 5, 12, 19

138 Cong. Rec.:

p. H11,413 (daily ed. Oct. 5, IS ER SRE 13

p. $17,603 (daily ed. Oct. 8, 1992) ......seeeeeesersreees 12

Staff of House Comm. on Ways & Means, 103d Cong.,

Ist Sess., Financing UMWA Coal Miner “Orphan

Retiree” Health Benefits (Comm. Print 1993) .......... 13

In the Supreme Court of the Gnited States

OCTOBER TERM, 1996

No. 96-431

BLUE DIAMOND COAL COMPANY, PETITIONER

Vv.

SHIRLEY S. CHATER,

COMMISSIONER OF SOCIAL SECURITY, ET AL.’

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

BRIEF FOR THE FEDERAL RESPONDENT

IN OPPOSITION

OPINIONS BELOW

The opinion of the court of appeals (Pet. App. 3a-

22a) is reported at 79 F.3d 516. The opinion of the

! The original federal party in this case was the Secretary

of Health and Human Services. The Secretary’s responsibili-

ties under the Coal Industry Retiree Health Benefit Act of

1992, 26 U.S.C. 9701 et seg., were transferred to the Commis-

sioner of Social Security as of March 31, 1995. See Social

Security Independence and Program Improvements Act of

1994 (1994 Act), Pub. L. No. 103-296, §§ 105(a)(1) and (2)(A),

108(h)(9)(A) and (B), 110(a), 108 Stat. 1472, 1487-1488, 1490. In

accordance with Section 106(d) of the 1994 Act, the Commis-

sioner of Social Security is substituted for the Secretary of

Health and Human Services as a party in this case. 108 Stat.

1477; see also Sup. Ct. R. 35.3.

(1)

2

district court (Pet. App. 23a-37a) is reported at 174

B.R. 722.

JURISDICTION

The judgment of the court of appeals was entered on

March 21, 1996. A petition for rehearing was denied

on June 28, 1996. Pet. App. la-2a. The petition for a

writ of certiorari was filed on September 17, 1996.

The jurisdiction of this Court is invoked under 28

U.S.C. 1254(1).

STATEMENT

1. The Coal Industry Retiree Health Benefit Act

of 1992, 26 U.S.C. 9701 et seg. (Coal Act or Act), en-

acted in response to a crisis in health care costs in

the coal industry, had its origins in a series of collec-

tive bargaining agreements between coal mine opera-

tors and the United Mine Workers of America

(UMWA). Those contracts, known as National Bitu-

minous Coal Wage Agreements (NBCWAs), created

multi-employer benefit plans that provided health

care benefits to active and retired miners and to their

dependents. See Pet. App. 4a-5a.

The health care benefits of coal miners, their

dependents, and their survivors have for many years

been a central issue in labor relations in the coal

industry. In 1946, the federal government nation-

alized the coal industry in response to a UMWA

strike over health and retirement benefits. The gov-

ernment and the UMWA subsequently negotiated a

contract (the Krug-Lewis Agreement) that, among

other things, established employer-sponsored health

and retirement programs. In 1947, after the mines

were returned to private control, the UMWA and the

Bituminous Coal Operators Association (BCOA)

3

entered into the first NBCWA, which created a multi-

employer health and welfare fund. Pet. App. 4a.

In 1950, a successor NBCWA established another

multi-employer fund known as the 1950 Welfare and

Retirement (W&R) Fund, to provide health care bene-

fits to active and retired miners and to their depend-

ents. Retired miners qualified for health care and

other retirement benefits from the 1950 W&R Fund

on the basis of portable service credits, which they

accrued through their employment with NBCWA

signatory operators. Pet. App. 12a. The 1950 W&R

Fund was financed through per-ton royalties paid by

signatory coal operators according to rates specified

in successive NBCWAs or amendments. /d. at 4a-5a.

The 1950 W&R Fund provided both health and

retirement benefits for active and retired miners

until 1974, when Congress enacted the Employee

Retirement Income Security Act of 1974 (ERISA), 29

U.S.C. 1001 et seg. In response to ERISA’s new fund-

ing requirements for pension plans, the 1974 NBCWA

divided the 1950 W&R Fund into four “trusts,” two of

which—known as the 1950 Benefit Trust and the 1974

Benefit Trust—financed medical benefits.? The 1950

Benefit Trust provided health care benefits to miners

who retired before 1976, and to their dependents. The

1974 Benefit Trust initially provided health care

benefits to miners retiring subsequently, to their

dependents, and to active miners. The 1974 NBCWA

expressly promised that covered retired miners would

retain health benefits for life. Pet. App. 5a.

The 1978 NBCWA limited the coverage of the 1974

Benefit Trust to “orphan” retired miners whose last

2 The other two trusts covered pension benefits for miners,

and are not at issue in this case.

4

coal industry employer had gone out of business or

had otherwise ceased contributing to the trusts, and

to their dependents. Responsibility for the health

care benefits of non-orphaned retirees, as well as

active miners, was shifted to the individual coal

operators remaining in business. See Davon, Inc. v.

Shalala, 75 F.3d 1114, 1118 (7th Cir.), cert. denied, 117

S. Ct. 50 (1996). The 1978 NBCWA contained a guar-

antee clause, which obligated signatories to make

sufficient contributions to ensure payment of the

lifetime benefits promised in the 1974 NBCWA, and an

“evergreen” clause, binding 1978 signatories to the

levels of funding specified in the 1978 and subsequent

NBCWAs, whether or not they actually signed subse-

quent agreements. [bid.

2. By the 1980s, a combination of demographic and

economic factors seriously impaired the financial

stability of the 1950 and 1974 Benefit Trusts. First,

as throughout American industry, the costs of health

care rose steeply. Second, structural changes in the

coal industry caused substantial reductions in both

the number of mine operators that were signatories

to the NBCWAs and the number of active coal miners

employed by signatory operators. Third, several em-

ployers that ended operations successfully contended

in court that their obligation to provide health

benefits to retired employees ceased with the last

NBCWA that they signed, and that the 1974 Plan was

responsible for their retirees’ medical benefits. Thus,

as more operators stopped contributing to the trusts,

their withdrawals forced the remaining participating

employers to shoulder increasingly large contribu-

tion obligations to pay for newly orphaned retirees as

well as their own retirees. See Pet. App. 5a.

After a protracted strike at the Pittston Coal

Company in 1989, in which health benefits were a

major issue, the Secretary of Labor established a

bipartisan advisory commission to study the financial

crisis confronting the Benefit Trusts. Pet. App. 5a.

The Coal Cornmission identified the escalating costs

of paying for “orphan” retirees as a primary source of

the financial crisis. Coal Commission Report: A Re-

port to the Secretary of Labor and the American

People 2 (Nov. 1990) (Coal Commission Report). The

Coal Commission proposed two possible solutions: an

industry-wide funding plan taxing all current coal

operators, and a more limited arrangement funded by

past and present NBCWA signatories. /d. at viii, 60-

65.

3. In October 1992, after extensive hearings on the

health care crisis in the coal industry and the

recommendations of the Coal Commission, Congress

enacted the Coal Act. See Energy Policy Act of 1992,

Pub. L. No. 102-486, Tit. XIX, Subtit. C, 106 Stat.

3036. The Coal Act was intended “to remedy problems

with the provision and funding of health care benefits

* * * to the beneficiaries of [coal industry] multi-

employer benefit plans”; to ensure “sufficient operat-

ing assets” for such plans; and “to provide for the

continuation of a privately financed self-sufficient

program” for delivering health care to the plan bene-

ficiaries. § 19142(b), 106 Stat. 3087. Congress also

found that, to ensure the proper functioning of inter-

state commerce, the coal industry’s existing system

for funding retiree health benefits should be modified

“to identify persons most responsible for plan liabili-

ties.” § 19142(a), 106 Stat. 3037.

The Coal Act established a new private multi-

employer plan, the UMWA Combined Benefit Fund

6

(Combined Fund), as the successor to the 1950 and

1974 UMWA Benefit Plans. 26 U.S.C. 9702(a)(1)-(2).°

The Combined Fund is required to provide benefici-

aries of the 1950 and 1974 Plans with substantially

the same health benefit coverage that those plans

provided. 26 U.S.C. 9703(b)(1). Health benefits under

the Combined Fund are limited to retired miners and

their dependents who were eligible to receive, and

vere receiving, benefits from the 1950 and 1974 Plans

as of July 20, 1992. 26 U.S.C. 9703(e)-(f). The Com-

bined Fund thus has a closed class of beneficiaries,

the membership of which will diminish over time.

The Combined Fund is financed primarily through

annual premiums. 26 U.S.C. 9704. Those premiums

must be paid by companies that signed one or more

NBCWAs, or that made contributions to the 1950 and

1974 Plans under related “me-too” wage agreements

that they signed (collectively, signatory operators).

See 26 U.S.C. 9701(b)(1) and (3), 9701(¢)().

The Coal Act bases the amount of premiums on the

principles that each signatory operator should bear

the cost of providing benefits to its own retirees, and

that all signatories should share proportionally in the

industry-wide cost of providing benefits to orphan

retirees. Toward the first end, the Act directs the

Commissioner of Social Security to match beneficiar-

ies of the Combined Fund with the signatory operator

responsible for paying for their health care benefits.

26 U.S.C. 9706(a). Assignments are made pursuant to

a statutory formula designed to place the primary

burden on signatory operators who signed NBCWAs

8 The Act also created another plan, the 1992 UMWA

Benefit Plan, which is not at issue in this case. See 26 U.S.C.

9712.

7

in 1978 and thereafter. /bid. Ifa company ceased par-

ticipating in NBCWAs prior to 1978, it is not assigned

responsibility for its former employees and their

dependents unless those employees did not work for

any surviving signatory operator that signed an

NBCWA in 1978 or thereafter, and unless those em-

ployees worked for the company (or a related entity)

longer than they worked for any other surviving

operator. See 26 U.S.C. 9706(a)(1)-(8).

Signatory operators are also potentially responsi-

ble for a proportional share of the premiums for

orphan beneficiaries, i.e., retired miners whose for-

mer coal industry employers have all gone entirely

out of business. To mitigate that additional burden,

however, the Act makes available additional sources

of funding for the Combined Fund. 26 U.S.C. 9705(a)-

(b); 30 U.S.C. 1232(h). Thus far, the existence of those

additional funding sources has meant that signatory

operators have not been required to pay premiums for

unassigned beneficiaries.

4. Petitioner is a coal company that has been en-

gaged in coal mining in Tennessee and Kentucky for

more than 50 years. Pet. App. 7a. Petitioner signed

the 1950 NBCWA and subsequent labor agreements

during the 1950s and early 1960s. Jdid. During the

time that petitioner conducted unionized mining

operations pursuant to those NBCWAs, its employees

accrued portable service credits, which were counted

in determining their eventual eligibility for health

benefits under the 1950 and 1974 Trusts. Jd. at 12a;

see p. 3, supra.

In 1964, petitioner stopped employing members of

the UMWA and terminated its obligations to the 1950

W&R Fund. Pet. App. 7a. Petitioner has continued to

mine coal since 1964 with non-union miners. bid.

8

Based on its participation in NBCWAs in the 1950s

and 1960s, petitioner has been assigned beneficiaries

under the Coal Act and is obligated to pay annual pre-

miums to the Combined Fund.

Petitioner filed suit in the United States District

Court for the Eastern District of Tennessee to enjoin

the enforcement of its financial obligations under the

Coal Act. Petitioner contended that the Coal Act’s

funding mechanism, as applied to coal operators that

ceased to participate in NBCWAs before 1974, violates

the Due Process Clause and the Just Compensation

Clause of the Fifth Amendment.

The district court granted summary judgment for

respondents, upholding the constitutionality of the

Coal Act’s funding obligations under both the Due

Process Clause and the Just Compensation Clause.

Pet. App. 23a-37a. Petitioner appealed, renewing both

of its constitutional claims, and the court of appeals

affirmed. Jd. at 3a-22a.

The court of appeals first addressed petitioner’s due

process claim. Pet. App. 9a-17a. Petitioner argued

that, because pre-1974 NBCW4As relied on a “pay as

you go” funding mechanism for retiree health bene-

fits and did not contractually obligate coal operators

to provide lifetime health coverage, requiring pre-

1974 NBCWA signatories like petitioner to contrib-

ute to the Combined Fund violates the Due Process

Clause. Jd. at 9a-10a. The court of appeals acknowl-

edged that lifetime health benefits “were not vested

or guaranteed” by pre-1974 NBCWAs. Id. at 4a; see

also id. at 12a (“It is undisputed that the [pre-1974]

__. _NBCWAs did not contain an explicit promise of

9

lifetime benefits.”). However, the court determined

that it was nonetheless rational for Congress to

include pre-1974 NBCWA signatories, as well as later

signatories, in the Coal Act’s funding obligations.

The court of appeals identified two legitimate

grounds for Congress to assign Combined Fund

beneficiaries to pre-1974 signatories who, like peti-

tioner, had employed them before their retirement.

First, all NBCWAs, including those signed before

1974, provided miners with portable service credits

that contributed to the eventual financial liabilities of

the 1950 and 1974 Benefit Trusts. Pet. App. 12a.

Because petitioner’s UMWA miners had accrued

portable service credits during their employment by

petitioner—credits that counted toward their

eventual eligibility for retirement health benefits

(see p. 3, supra)—petitioner and similarly situated

pre-1974 signatories bore at least some measure of

responsibility for the financial liabilities that the

Coal Act was designed to redress. Jd. at 12a, 14a-15a.

Second, although pre-1974 signatories did not ex-

pressly promise to provide lifetime health benefits,

the lengthy and continuous industry practice of

providing such benefits had created a legitimate

expectation of lifetime coverage on the part of miners,

and all NBCWA signatories shared in the respon-

sibility for creating those expectations. Jd. at 12a-

14a.

4 Petitioner is therefore wrong when it asserts (Pet. 6) that

the court of appeals “differed with the District Court’s findings

of fact” regarding the contractual obligations of pre-1974

NBCWA signatories. Compare Pet. App. 4a, 12a (court of

appeals) with id. at 24a, 35a (district court).

10

The court of appeals then turned to petitioner’s

takings claim. Pet. App. 17a-22a. The court analyzed

the claim by applying the three factors identified by

this Court in Connolly v. Pension Benefit Guaranty

Corp., 475 U.S. 211, 224-225 (1986): “(1) the economic

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

extent to which the regulation has interfered with

distinct investment-backed expectations; and (3) the

character of the governmental action.” Pet. App. 18a.

In applying those criteria, the parties and the court

looked for guidance to this Court’s decisions in

Connolly itself and in Concrete Pipe & Prods. of

California, Inc. v. Construction Laborers Pension

Trust, 508 U.S. 602 (1993). Connolly and Concrete

Pipe involved the constitutionality of the Multi-

employer Pension Plan Amendments Act of 1980

(MPPAA), Pub. L. No. 96-364, 94 Stat. 1208, which

retroactively imposed statutory “withdrawal liabil-

ity” on employers who had withdrawn from multiem-

ployer pension plans. This Court held that the

MPPAA’s withdrawal liability provisions did not

amount to an uncompensated “taking” of property,

either on their face (Connolly) or as applied to an

individual employer (Concrete Pipe).

Here, petitioner acknowledged that the Coal Act

could not be distinguished from the MPPAA with

respect to two of the three Connolly factors, the

Act’s economic impact on petitioner and its claimed

interference with petitioner’s investment-backed

expectations.’ Petitioner therefore relied solely on

5 Petitioner asserted that “the economic impact and inter-

ference with reasonable investment backed expectations

imposed on [petitioner] by the Coal Act are severe, extreme,

and substantial,” but conceded that “those two factors were also

11

the “character” of the government’s actions as an

asserted basis for distinguishing Connolly and Con-

crete Pipe. See Pet. C.A. Br. 39 (“[tJhe decisive focus

* * * has to be on the character of the legislation”).

The court of appeals rejected that argument, conclud-

ing that the Coal Act did not differ materially from

the MPPAA with respect to any of the Connolly

factors. Pet. App. 19a-22a.

ARGUMENT

This is the latest in a series of cases challenging

the constitutionality of the funding mechanisms

of the Coal Act. The courts of appeals have been

unanimous in rejecting those challenges. See Bar-

rick Gold Exploration, Inc. v. Hudson, 47 F.3d 8382

(6th Cir.), cert. denied, 116 S. Ct. 64 (1995); In re

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

116 S. Ct. 298 (1995); Davon, Inc. v. Shalala, 75 F.3d

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

Lindsey Coal Mining Co. v. Chater, 90 F.3d 688 (8d

Cir. 1996). In each of those cases in which review by

this Court has been sought, the Court has declined

review. Most recently, in Davon, the Court denied

petitions for a writ of certiorari presenting exactly

the same Just Compensation Clause challenge that

petitioner is pursuing in this case. There is no

reason for the Court to follow a different course here.

1. Petitioner’s constitutional challenge focuses on

the inclusion of pre-1974 signatory coal operators in

the funding mechanism of the Coa! Act. As the court

of appeals recognized, however, Congress had sound

present * * * in each of the [] Concrete Pipe line of cases.”

Pet. C.A. Br. 38.

12

reasons for requiring pre-1974 signatories as well as

later signatories to contribute to the Combined Fund.

Every pre-1974 signatory employed miners who

were entitled to receive retirement health benefits

from the 1950 and 1974 Benefit Trusts. Those trusts

were multi-employer trusts; miners received their

entitlement to health care benefits based on portable

service credits obtained from operators who signed

one of the NBCWAs in effect since 1950. Moreover,

those trusts provided “comprehensive health care

benefits for retired miners and their families” for 45

years, Coal Commission Report vii, and retired

miners had “legitimate expectations of health care

benefits for life” from the trusts, id. at 1. It was

therefore appropriate for Congress to require all the

coal operators who contributed to the liabilities of the

benefit funds to pay some of the cost for restoring the

financial stability of the health care system. See

Concrete Pipe, 508 U.S. at 638.

In addition, all signatory operators benefited sub-

stantially from participation in the multi-employer

benefit system that was established in the 1940s and

faced a crisis in the early 1990s. First, they plainly

benefited from their own miners’ labor. See 138 Cong.

Rec. $17,608 (daily ed. Oct. 8, 1992) (Coal Act assigns

financial responsibility to “those companies which

employed the retirees in question and thereby bene-

fitted from their services”). Moreover, all signatory

operators benefited from the ease of movement of

miners and the labor peace throughout the industry

to which those multi-employer trusts (with their

portable service credits) significantly contributed.

Cf. Concrete Pipe, 508 U.S. at 638-639. Congress

therefore properly concluded that all signatory

operators could be held financially responsible for

eee

13

making good on the “moral obligation to the [miners]

and retirees” to contribute towards the cost of their

health care. See National R.R. Passenger Corp. v.

Atchison, T. & S.F. Ry., 470 U.S. 451, 477 (1985).

Congress also reasonably concluded that inclusion

of pre-1974 signatory operators in the Coal Act’s

financing scheme was necessary to secure adequate

funding for the health care of retired coal miners and

their dependents. Financial and actuarial figures

presented at 1991 Senate hearings called into ques-

tion the feasibility of limiting the so-called “reach-

back” provision to 1978 and later NBCWA signato-

ries. A more limited reachback provision could well

have left a significant number of beneficiaries of the

1950 UMWA Benefit Trust “orphaned.” See Staff of

House Comm. on Ways & Means, 103d Cong., Ist

Sess., Financing UMWA Coal Miner “Orphan

Retiree” Health Benefits 24-27 (Comm. Print 1993);

138 Cong. Rec. H11,413 (daily ed. Oct. 5, 1992) (Rep.

Rahall) (noting that “75 percent of the retirees

served by the [UMWA] health funds never worked for,

or had any connection with, a currently contributing

company”). Given that possibility, “[i]Jt [was] surely

proper for Congress to legislate retrospectively to

ensure that costs of a program are borne by the entire

class of persons that Congress rationally believes

should bear them.” United States v. Sperry Corp.,

493 U.S. 52, 65 (1989).

2. In the proceedings below, petitioner contended

that the application of the Coal Act to pre-1974 signa-

tories violated both the Due Process Clause and the

Just Compensation Clause (see p. 8, supra). Peti-

tioner has now abandoned its due process claim, but

continues to pursue the taking claim. As this Court

has cautioned, however, when “due process argu-

14

ments [against economic legislation] are unavailing,

St would be surprising indeed to discover’ the chal-

lenged statute nonetheless violates the Takings

Clause.” Concrete Pipe, 508 U.S. at 641 (quoting

Connolly, 475 U.S. at 223). The court of appeals

correctly determined that there is no “taking” in this

case.

a. As noted above, the only element of the three-

factor Connolly test that petitioner invoked below to

distinguish this case from Connolly and Concrete

Pipe was the “character” of the government’s action.

As the court of appeals recognized, however, “the

character of the Coal Act is identical to the character

of the MPPAA.” Pet. App. 21la-22a. In Connolly, the

Court explained that the government’s imposition of

withdrawal liability under the MPPAA “d{id] not

physically invade or permanently appropriate any of

the employer’s assets for [the government’s] own

use,” but instead imposed a financial obligation on

employers to “safeguard[] the participants in multi-

employer pension plans.” 475 U.S. at 225. The same

is true here: the government has not taken any identi-

fiable property of coal operators for its own use, but

has only required the operators to contribute finan-

cially to a private entity that is responsible for paying

the health care costs of retired miners.°

6 The Combined Fund established by the Coal Act is itself a

private plan (see 26 U.S.C. 9702(a)(2)), and the Coal Act carries

forward the privately negotiated health benefit scheme that

the Combined Fund’s predecessors operated prior to 1992. The

Combined Fund provides benefits to the same people who were

receiving benefits from the predecessor plans, and it provides

the same medical coverage that they enjoyed prior to

enactment of the Coal Act. 26 U.S.C. 9703(b)(1), 9703(f). In

15

The Coal Act, like the MPPAA, implements a

“public program that adjusts the benefits and burdens .

of economic life to promote the common good.”

Connolly, 475 U.S. at 225. Even though it might be

said that the Coal Act requires petitioner to devote

its assets to satisfying its new financial obligations

to the Combined Fund, “(g]iven the propriety of the

governmental power to regulate, it cannot be said that

the Taking Clause is violated whenever legislation

requires one person to use his or her assets for the

benefit of another.” Jd. at 223. Thus, petitioner “has

not identified any of its property that was taken

without just compensation.” Sperry, 493 U.S. at 59.

b. Connolly and its progeny also look to the

economic impact of the challenged regulation on the

plaintiff. Concrete Pipe, 508 U.S. at €45; Connolly,

475 U.S. at 225. The court of appeals determined that

petitioner’s liability under the Coal Act is “at least

roughly proportional” to its experience with the Com-

bined Fund’s predecessor funds. Pet. App. 19a." The

court noted, inter alia, that nearly all of the benefi-

ciaries assigned to petitioner under the Coal Act

were its former employees or their family members;

that petitioner had provided service credits to those

employees that counted toward their retirement

health benefit eligibility; and that the Act assigned

beneficiaries to petitioner only when they could not

short, the Coal Act perpetuates the basic contours of a

privately negotiated multi-employer benefit plan.

7 It is undisputed that the relevant inquiry involves the

proportionality of the burden rather than its absolute magni-

tude. See Concrete Pipe, 508 U.S. at 645; Davon, 75 F.3d at

1127-1128; Chateaugay, 53 F.3d at 494.

16

be assigned to signatories of more recent NBCWAs.

Id. at 19a-20a.

Petitioner asserts (Pet. 15, 17) that the Coal Act’s

impact on it is disproportionate because the coal

industry’s health fund was not contractually liable for

lifetime health benefits prior to 1974. Petitioner

further argues (Pet. 18) that pre-1974 NBCWA

signatories “did nothing to compel or even influence

the 1974 contract negotiations that resulted in life-

time benefit entitlements.”

This argument erroneously treats the 1974

NBCWA as a fundamental break between the coal

industry’s prior and subsequent retirement health

care arrangements. As the Seventh Circuit pointed

out in Davon, with regard to the issue of lifetime

health coverage, “(nJothing radical happened in 1974.”

75 F.3d at 1128. The express promises of lifetime

benefits made to miners in 1974 and thereafter did not

spring into existence from a void. Instead, the con-

tractual guarantee of lifetime health benefits, and the

health plan’s corresponding contractual liability to

employees and their dependents, were the direct

products of more than 20 years of industry practice

regarding health benefits under pre-1974 NBCWAs,

including those to which petitioner was a party. As

explained above, the health care system created by

pre-1974 NBCWA signatories contributed to the

legitimate expectations of miners and their depend-

ents, and the explicit contractual guarantees provided

in 1974 and thereafter were products of those expecta-

tions. Thus, the actions of pre-1974 signatories like

petitioner did contribute, albeit indirectly, to the

ultimate liabilities of the industry’s health plans. See

ibid.

17

Petitioner’s argument presupposes that contrac-

tual liability is the benchmark of proportionality for

Just Compensation Clause purposes. But nothing in

Connolly or Concrete Pipe supports that premise.”

As the Second Circuit held in Chateaugay, it is “the

employment relationship [that] supplies the rational

link”: “(bly * * * mooring a given company’s funding

obligations to a legitimate measure of its prior benefit

from the UMWA health care system, the Coal Act

rationally apportions future financial responsibility

according to past contributions.” 53 F.3d at 494. As

explained above, petitioner’s funding obligations are

directly tied to its past employment of miners receiv-

ing health benefits under the Coal Act, and the Act in

fact skews the assignment of beneficiaries away from

companies like petitioner that did not sign NBCWAs

after 1974 (see pp. 6-7, swpra). Under these circum-

stances, measuring the Act’s financial obligations

against the “yardstick * * * of proportionality”

(Chateaugay, 53 F.3d at 494) hardly suggests that

petitioner has suffered an unconstitutional taking.

8 Petitioner asserts that the existence of contractual

liability was “essential” to the holdings in Connolly and

Concrete Pipe (Pet. 14). But Connolly actually points in

precisely the opposite direction. As the Court there explained,

“{a]ppellants’ claim of an illegal taking gains nothing from the

fact that the employer in the present litigation was protected

by the terms of its contract from any liability beyond the

specified contributions to which it agreed. * * * If the

regulatory statute is otherwise within the powers of Congress,

therefore, its application may not be defeated by private

contractual provisions.” 475 U.S. at 223-224. Connolly thus

makes clear that existing contractual obligations do not mark

the limit of the government’s authority under the Just

Compensation Clause.

18

ce. The remaining Connolly factor is the extent to

which the statute interferes with “distinct invest-

ment-backed expectations” on the part of the regu-

lated party. Connolly, 475 U.S. at 225. The court of

appeals determined that the Coal Act did not interfere

with petitioner’s reasonable investment-backed ex-

pectations in a way that weighs in favor of finding a

taking. Pet. App. 20a-21a. Although petitioner ar-

gues otherwise, it does not identify any distinct in-

vestments that were undertaken or foregone in the

expectation that it would remain free from liability

for the costs of its former employees’ retirement

health care.

In Connoliy, employers who had withdrawn from a

multi-employer pension plan when such withdrawal

was fully free from liability contended that the

subsequent, retroactive imposition of withdrawal

liability by Congress upset their reasonable expecta-

tions. This Court concluded, however, that because

pension plans had long been the objects of legislative

concern even before the enactment of ERISA, prudent

employers had more than sufficient notice before

enactment of the withdrawal liability provisions that

withdrawal might trigger future financial obliga-

tions. 475 U.S. at 227.

Here too, the long history of federal involvement in

the coal industry (and particularly in the issue of

health benefits for coal miners) belies the notion that

pre-1974 NBCWA signatories could have reasonably

expected future immunity from further contribution

toward meeting the costs of retired employees’ health

benefits. As early as 1946, when the government

nationalized the coal mines and negotiated the Krug-

Lewis Agreement, it was clear both that the stability

of the coal industry demanded adequate employee

19

health and welfare benefits, and that the federal

government was prepared to intervene to ensure the

availability of those benefits. The first multi-

employer welfare and retirement fund, set up by the

1946 Krug-Lewis Agreement, was managed by three

trustees, one of whom was appointed by the federal

government. Coal Commission Report 18-19.2 From

that point on, the federal government’s involvement in

establishing the health care delivery system for

retired miners was extensive. Jd. at 21, 22, 23, 28.

Thus, signatory operators who ceased to contribute

to the industry’s multiemployer health benefit pro-

gram can hardly have expected that they would escape

all financial responsibility in the event of further

federal intervention on behalf of their former

employees.

3. In asking this Court to review the decision

below, petitioner argues primarily (Pet. 8-15) that the

evidence it presented to the district court created a

genuine issue of material fact, making it inappropri-

ate for the district court to enter summary judgment

against petitioner. Whether the state of the record in

this case was sufficient to support summary judg-

ment is a factbound question that does not warrant

consideration by this Court. See, e.g., United States

v. Johnston, 268 U.S. 220, 227 (1925) (“We do not grant

a certiorari to review evidence and discuss specific

facts.”). In any event, nothing about the evidence

proffered by petitioner required the district court to

% Indeed, the Coal Commission noted that the multi-

employer funds providing health care benefits to retired

miners were created “in the White House in a contract between

the federal government and the UMWA.” Coal Commission

Report vii.

20

engage in a factfinding trial before the constitutional-

ity of the Coal Act could be determined.

The evidence relied on by petitioner, such as

statements by the trustees of the 1950 W&R Fund

about the non-vested character of the Fund’s benefits,

indicates that pre-1974 NBCWAs did not contractu-

ally obligate coal operators to provide lifetime health

benefits (e.g., Pet. 9). But the decisions of the

district court and the court of appeals do not rest on a

contrary view of the facts. To the contrary, as noted

above, the district court and the court of appeals both

expressly acknowledged the absence of binding con-

tractual obligations on the part of pre-1974 signato-

ries. See Pet. App. 4a, 12a, 14a (court of appeals); id.

at 24a, 35a (district court). Petitioner was not en-

titled to a trial to “prove” a matter that the courts

below both accepted as true for purposes of their

decisions.

Petitioner appears to contend that, because pre-

1974 signatory operators were not contractually

obligated to provide miners with lifetime health

benefits, the court of appeals had no basis for

determining that miners had legitimate expectations

of receiving lifetime care. That is a non sequitur. As

the court of appeals pointed out, the coal industry

provided lifetime health coverage for retired miners

virtually without interruption for more than 40 years,

from the signing of the first NBCWA in the late 1940s

until the enactment of the Coal Act in 1992. It was

® We note that substantially the same evidence was

presented to the district court and the Seventh Cireuit in

Davon. See, ¢.g., Templeton Coal Co. v. Shalala, 882 F. Supp.

799, 815 (S.D. Ind. 1995), aff'd sub nom. Davon, Inc. Vv.

Shalala, 75 F.3d 1114, cert. denied, 117 S. Ct. 50 (1996).

a __

21

the existence of this “continuous mechanism” (Da-

von, 75 F.3d at 1125), not the presence of explicit

contractual guarantees, that gave rise to legitimate

expectations of continued health coverage on the part

of miners and their dependents. Each successive

NBCWA contributed to the development and mainte-

nance of that system, and all NBCWA signatories

played a role in the resulting expectations of the

health funds’ beneficiaries. Thus, to the extent that

the court of appeals’ Just Compensation Clause

analysis depends on the legitimate expectations of the

Combined Fund’s beneficiaries, the decision is firmly

grounded in industry experience.

Petitioner also urges this Court (Pet. 16-17) to

grant review in order to adopt the views expressed in

Justice Scalia’s dissent in Pennell v. City of San

Jose, 485 U.S. 1 (1988), and Justice O’Connor’s con-

curring opinions in Connolly and Concrete Pipe. The

decision below, however, is entirely consistent with

those views. Because all NBCWA signatory opera-

tors, including pre-1974 signatories, played at least

some part in the eventual development of the health

care crisis that led to the Coal Act, this is not a case

in which the government is compelling “one citizen

[to] pay * * * to remedy a social problem that is none

of his creation.” Pennell, 485 U.S. at 23 (Scalia, J.,

dissenting). And for the reasons set forth above, the

Sixth Circuit and the other courts of appeals had

ample basis for finding that the conduct of pre-1974

signatories “make[s] it rational to treat the employ-

ees’ expectations of benefits under the plan as the

employer’s responsibility.” Concrete Pipe, 508 U.S.

at 647-648 (O’Connor, J., concurring); see generally

Connolly, 475 U.S. at 228-236 (O’Connor, J., concur-

ring).

22

The fundamental question under the Just Compen-

sation Clause is whether Congress is “forcing some

people alone to bear public burdens which, in all

fairness and justice, should be borne by the public as a

whole.” Connolly, 475 U.S. at 227. That is not the

case here. It was eminently reasonable for Congress

to conclude that NBCWA signatories as a class bear a

collective responsibility, and one greater than that of

the public as a whole, for the health care of retired

coal miners and their dependents. Coal operators

such as petitioner benefited from the labor of those

miners as well as from the multi-employer health

care system established to benefit the coal industry

as a whole. Companies that left the collective bar-

gaining process left behind miners whose retirement

health care costs were ultimately borne by other

operators. Under those circumstances, “fairness and

justice” do not require the public at large to assume

the costs of the Combined Fund, nor do they entitle

petitioner to immunity from those costs.

CONCLUSION

The petition for a writ of certiorari should be

denied.

Respectfully submitted.

WALTER DELLINGER

Acting Solicitor General

FRANK W. HUNGER

Assistant Attorney General

DOUGLAS N. LETTER

Scott R. MCINTOSH

Attorneys

NOVEMBER 1996

Supreme Court, U.S.

Q ri: BP

NOV 27 1996

No. 96-431

spon R nee

Supreme Court of the Hnited States

.

October Term, 1995

BLUE DIAMOND COAL COMPANY,

Petitioner,

vs.

SHIRLEY S. CHATER, COMMISSIONER OF SOCIAL

SECURITY and MARTY D. HUDSON, MICHAEL

HOLLAND, ELLIOT A. SEGAL, THOMAS 0. S. RAND,

CARLTON R. SICKLES, GAIL R. WILENSKY and

WILLIAM P. HOBGOOD, TRUSTEES OF THE UNITED

MINE WORKERS OF AMERICA COMBINED BENEFIT

FUND,

Respondents.

On Petition for a Writ of Certiorari to the United States

Court of Appeals for the Sixth Circuit

REPLY BRIEF FOR PETITIONER

LEWIS R. HAGOOD

Counsel of Record

DAN D. RHEA

ARNETT, DRAPER & HAGOOD

Attorneys for Petitioner

2300 First Tennessee Plaza

800 South Gay Street

Knoxville, Tennessee 37929-2300

(423) 546-7000

9510

M ngeae (800) 3 APPEAL « (800) 5 APPEAL « (800) BRIEF 21

ervices, inc.

p\

1

Justice Holmes has declared that the Takings Clause

question “depends upon the particular facts.” Pennsylvania Coal

Co. v. Mahon, 260 U.S. 393, 413 (1922). This Court should

grant review of this case to rule on how those “particular facts”

should be determined. The petitioner, Blue Diamond Coal

Company, has submitted substantial evidence to the courts below,

and to this Court, plainly establishing that it played no role in

the creation of “legitimate expectations of lifetime health care

benefits” on the part of its UMWA-affiliated employees and their

families. Pet. at 9-10. Despite this, the respondents nevertheless

insist that Blue Diamond did play such a role, and that role is

what renders the Coal Act a “regulation” (of those “legitimate

expectations”) instead of a “taking” of Blue Diamond’s money.

The Sixth Circuit Court of Appeals, following the lead of the

Seventh Circuit Court of Appeals in Davon, Inc. v. Shalala, 75

F.3d 1114 (7th Cir. 1996), resolved this fact issue against Blue

Diamond, upon the respondents’ motions for summary judgment.

That result cannot be justified as proper summary judgment

procedure. In these summary judgment proceedings, it was Blue

Diamond's version, and proof, regarding disputed issues of fact,

that should have been “presumed correct,” and not the allegations

of the movants. Eastman Kodak Co. v. Image Technical Services,

Inc., 504 U.S. 451, 456 (1992). Nor can that result be justified,

on a Constitutional basis, on the grounds that legislative factual

determinations, or assumptions, must be deemed correct if they

have a “rational basis.” This Court has expressly rejected

“rational basis” as the standard of review for Takings Clause

cases. Nollan v. California Coastal Commission, 483 U.S. 825

(1987); Dolan v. City of Tigard, 114 S.Ct. 2309 (1994). As even

the dissent in Nollan recognized, the Takings Clause incorporates

Constitutional values distinct from the Fifth Amendment’s Due

Process Clause, and those values can be protected only by a

factual judicial inquiry into the pertinent Takings Clause

concerns. See Footnote 1 of Dissent, Nollan, 483 U.S. at 843.

It is no answer to this case, as respondents suggest, that the

2

Coal Act may be “rational” economic legislation. ‘ Most

respectfully, THE FAIRNESS AND JUSTICE GUARANTEED

TO PROPERTY OWNERS BY THE TAKINGS CLAUSE

CANNOT BE SUSTAINED BY RATIONALIZATIONS,

PARTICULARLY FALSE ONES!

The respondents ignore these concerns. Instead, they

continue to present their own distorted version of history, and

their own distorted version of this case,' as truth, ignoring the

foregoing precedents of this Court that reject the procedures by

which “the truth” has been ascertained in this case, so far.

Neither respondents nor the lower courts attempt to analyze the

tripartite Takings Clause inquiries in terms of Blue Diamond’s

facts, which Eastman Kodak teaches should have been

“presumed correct” from the very beginning.

First, as to the character of the Coal Act, the statute is indeed

similar, but not identical, in nature to the Multi-Employer

Pension Plan Amendments to ERISA (MEPPA) sustained by this

Court in Connolly v. Pension Benefit Guaranty Corporation, 475

U.S. 211 (1986) and Concrete Pipe and Products of Calif., Inc.

1. In the District Court, Blue Diamond objected and moved to strike

many of the factual allegations contained in the respondents’ briefs, including

their ultimate factual allegation that Blue Diamond helped to foster “legitimate

expectations of lifetime benefits.” The grounds for Biue Diamond's objection

and motion were that the respondents’ allegations were not established in

their proof, were disproven by Blue Diamond’s proof, and were ultimately

shown to be untrue. Sixth Circuit Joint Appendix pp. 485-495, Plaintiff's

Objection, Motion to Strike, and Response to Defendants’ Statements of

Undisputed Fact and Proposed Conclusions of Law. The District Court found

Blue Diamond’s objections and motion “well taken,” and sustained it. Sixth

Circuit Joint Appendix pp. 500-501, Order of October 4, 1994. The Sixth

Circuit, like the respondents here ignored this ruling of the District Court.

Unfortunately, the catalog of misstatements in respondents’ factual

presentations is too extensive for a point-by-point rebuttal in a Reply Brief

limited to ten pages.

< ~~ ews

)

3

v. Construction Laborers Pension Trust, 508 U.S. 602 (1993).

No court below discussed the key factual difference between

the two statutes. The MEPPA imposed the cost of unfunded

vested liabilities upon those employers who created them. See

Connolly and Concrete Pipe. The Coal Act, as applied to pre-

1974 UMWA contract signatories, imposes the cost of unfunded

vested liabilities upon employers who did not create them. The

lower courts either ignored this difference altogether, as the Sixth

Circuit did in its Takings Clause “character” analysis, or else

assumed, on the basis of “rationality,” that the difference did

not exist, as the Seventh Circuit did in Davon. Either way,

fairness and justice to the affected property owners was not

served.

Second, as to the economic impact and proportionality of

the Coal Act to pre-1974 signatories’ “experience with the plan,”

no court below discussed proportionality in terms of the

employer’s “share of plan obligations incurred during [the

employer’s] association with the plan.” Concrete Pipe, 508 U.S.

at 643. The pre-1974 UMWA fund never incurred any long-

term obligations whatsoever. Thus, not one of the lower courts

reviewed “proportionality” by the same criteria this Court

reviewed proportionality in Connolly and Concrete Pipe.

Third, as to reasonable investment-backed expectations, this

Court in Connolly and Concrete Pipe found it unreasonable for

employers to expect no liability, on the basis of their contracts,

for “promised benefits.” Concrete Pipe, 508 U.S. at 646. That

finding was swayed primarily by the fact that each employer

stood concurrently liable, notwithstanding their contracts, for

unfunded vested benefits under ERISA anyway. The lower courts

in this case found it unreasonable for employers to expect no

liability, on the basis of their contracts, for benefits they never

promised. No regulation of law existed, before 1974, that

required Blue Diamond, or other pre-1974 signatories to fund

retirement benefits, and particularly benefits they never

4

promised, under any circumstances! To reach their totally

illogical and unjust conclusions against legitimate employer

expectations, every court below, with the exception of District

Judge Hull in this case, relied materially upon the pure

rationalization that those employers had nonetheless “fostered

legitimate expectations of lifetime benefits.” So we are back

full circle, with the Constitutionality of the Coal Act as applied

to pre-1974 UMWA signatories, under the Takings Clause,

resting exclusively upon a rationalization the: Blue Diamond

has proven false.

There is no fairness, and no justice in rewriting history to

accommodate social welfare goals. There is no fairness, and no

justice, in purported justifications that can pass as

rationalizations, but not as truth. There is no fairness, and no

justice in requiring Blue Diamond Coal Company to pay the

cost of a promise, or, if you will, the cost of “legitimate

expectations,” it manifestly did not make.

The integrity of the Takings Clause as a guarantee of fairness

and justice to property owners, and not a guarantee of mere

rationality, compels the conclusion that this Court must grant

certiorari in this case. ;

Respectfully submitted,

LEWIS R. HAGOOD

Counsel of Record

DAN D. RHEA

ARNETT, DRAPER & HAGOOD

Attorneys for Petitioner

2300 First Tennessee Plaza

800 South Gay Street

Knoxville, Tennessee 37929

(423) 546-7000