Patriot Coal tries to ward off Peabody Energy document demand

Patriot Coal on Sept. 3 filed an adversary proceeding in its bankruptcy court in an attempt to avoid what it calls a burdensome document demand from former parent Peabody Energy (NYSE: BTU).

Peabody, which spun off Patriot in an IPO in 2007, is involved in a separate lawsuit over the United Mine Workers of America-related liability that Peabody shed in that IPO. Peabody, in turn, has subpoenaed a massive number of documents related to the union liabilities from Patriot. What Patriot is asking the court to do in its Sept. 3 complaint is to put the Peabody document request under the automatic stay that a bankruptcy court imposes on outside litigation involving a bankrupt company.

“Since filing for bankruptcy, the Debtors have made immense strides toward reorganization,” Patriot said. “Currently engaged in active negotiations with various parties regarding exit financing and the terms of an acceptable plan of reorganization, the Debtors intend to—and must—have a confirmed plan by the end of the year. The end is in sight, though several critical hurdles remain to be cleared before a plan of reorganization can be confirmed. And Peabody is attempting to erect another hurdle in the Debtors’ path to emergence.”

Peabody is a defendant in Lowe v. Peabody Holding, pending in the U.S. District Court of the Southern District of West Virginia in which the plaintiffs have alleged, among other things, that Peabody attempted to deprive its former employees represented by the UMWA of their employment benefits through the spinoff of Patriot from Peabody, Patriot noted.

“Although Peabody’s motion to dismiss the amended complaint in that case is still pending, Peabody has nevertheless propounded the Subpoena on Patriot—a document of incredible breadth, containing 53 individual requests, a number of which include multiple subparts, and approximately a third of which Peabody itself has previously characterized as being ‘overbroad’ and ‘unduly burdensome,’” said Patriot. “Many of the requests have no obvious relevance to the allegations at issue in Lowe, and even more request documents that should already be in Peabody’s custody.”

Patriot added: “Without an extension of the automatic stay enjoining enforcement of the Subpoena, the Debtors’ already thinly spread resources will be stretched yet further as they are forced to have essential personnel expend time combing their files for documents responsive to discovery requests and to review those documents at great expense. Given the fragile state of the Debtors’ recovery and the need for all resources to be allocated to meeting demands ahead of confirmation, such discovery requests pose serious threats to the Debtors’ ability to successfully reorganize.”

Patriot is asking that the U.S. Bankruptcy Court for the Eastern District of Missouri enter an order extending the automatic stay to enjoin enforcement of the subpoena until the effective date of a confirmed plan of reorganization for the Patriot companies. Patriot’s current deadline to file the reorganization plan is Dec. 1, with some months needed from there to get it confirmed – if it is confirmed at all.

In 2012, St. Louis-based Patriot sold a total of 24.9 million tons of coal, which was a reduction of almost 20% from the 31.1 million tons sold in 2011. Patriot was the tenth largest coal-producing enterprise in the U.S. based on 2012 coal production and the sixth largest coal-producing enterprise based on 2012 revenues.

Peabody, also based in St. Louis, is the nation’s largest coal producer.

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.