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UNITY REAL ESTATE CO. v. HUDSON

June 7, 1995

UNITY REAL ESTATE CO., Plaintiff,
v.
MARTY D. HUDSON, et al., TRUSTEES OF THE UMWA COMBINED BENEFIT FUND, and MARTY D. HUDSON, et al., TRUSTEES OF THE 1992 UMWA BENEFIT PLAN, Defendants.



The opinion of the court was delivered by: D. BROOKS SMITH

 SMITH, District J.

 I. Introduction

 This matter currently is before the Court on the motion of plaintiff Unity Real Estate Co. ("Unity") for a preliminary injunction (Docket No. 4). Unity seeks to restrain enforcement of the Coal Industry Retiree Health Benefit Act of 1992, Pub. L. 102-486, 106 Stat. 2776, 3036-56 (codified at 26 U.S.C. §§ 9701-9722) (the "Coal Act"), by the defendants, the Boards of Trustees of the UMWA Combined Benefit Fund and the 1992 UMWA Benefit Plan. Unity claims that the Coal Act, as applied, violates the Substantive Due Process and Takings Clauses of the Fifth Amendment. *fn1" In addition, Unity argues that the liabilities imposed upon it pursuant to the Act were done without procedural due process. Because Unity's challenges to the Coal Act are based on claims that the Act is unconstitutional, the United States has intervened in support of the Act's constitutionality.

 Unity's motion was referred to Magistrate Judge Keith A. Pesto, pursuant to the Magistrates Act, 28 U.S.C. § 636(b)(1), and subsections 3 and 4 of Local Rule 72.1 for Magistrate Judges. On December 7, 1994, Magistrate Judge Pesto issued his Report and Recommendation, in which he rejected Unity's due process arguments, but recommended that an injunction issue based on his conclusion that the Coal Act, as applied to Unity, "effects an uncompensated taking, and is therefore unconstitutional." Docket No. 26, at 12.

 Pursuant to 28 U.S.C. § 636(b)(1), all parties filed written objections to the Report and Recommendation. Unity objected to the conclusion that the Coal Act did not violate the substantive component of the Due Process Clause. The United States and the defendant Trustees objected to the Magistrate Judge's Takings Clause analysis, and also contended that he had improperly found irreparable harm based on financial injury alone. No party objected to the Magistrate Judge's conclusion that the procedural due process challenge to the Coal Act would not support the issuance of a preliminary injunction. *fn2" All of the parties filed supplemental evidentiary materials as well as extensive briefs in support of their objections to the Report and Recommendation.

 On January 11, 1995, the Magistrate Judge issued an Amended Report and Recommendation. Docket No. 42. In the Amended Report and Recommendation, the Magistrate Judge considered the additional factual and legal submissions, and adhered to his original recommendation that "the Coal Act as applied to Unity is so palpably unconstitutional that a preliminary injunction should issue against the enforcement of the Act against it." Docket No. 42, at 3.

 In response to the Amended Report and Recommendation, the parties again filed lengthy briefs. *fn3" For the reasons set forth below, I agree with the Magistrate Judge's conclusions that the Coal Act, as applied to Unity, does not violate the Substantive Due Process Clause, but that the Act does effect an uncompensated taking in violation of the Fifth Amendment. Unity's request for a preliminary injunction shall be granted.

 II. Findings of Fact

 Unity is a corporation owned by members of the Jamison family, and it owns a small commercial building and parking lot in Greensburg, Pennsylvania. Unity employs two individuals, an officer at a salary of $ 7,200 per year, and a janitor. Its annual gross revenues are approximately $ 50,000 and its net worth is approximately $ 85,000.

 Unity was incorporated in 1947, and in 1969 was the surviving entity after a merger with three inactive coal companies: Stewart Coal & Coke, Penn View Coal, and South Union Coal Company. Like Unity, South Union was a Jamison family-owned company, which had incorporated in Pennsylvania in 1922. From 1922 through 1960, South Union operated at various times two coal mines in southwestern Pennsylvania and one mine in northern West Virginia. From 1961 until 1969 (when it merged with the other companies and became Unity), South Union mined no coal.

 The parties appear to agree that Unity also is the statutory successor to two additional coal producers: Jamison Coal Company and Moremet Coal Company.

 In 1974, Unity incorporated a wholly-owned subsidiary in West Virginia, also named South Union Coal Company, to reopen the mine formerly operated by the Pennsylvania-incorporated South Union. South Union (West Virginia) operated the mine in West Virginia formerly operated by South Union (Pennsylvania) from 1974 until 1981, when it went bankrupt.

 South Union (Pennsylvania) was a member of the Northern West Virginia Coal Association, which was a signatory to the 1950, 1951, 1952, 1955, 1956, and 1959 National Bituminous Coal Wage Agreements ("NBCWA") through its membership in the Bituminous Coal Operators Association ("BCOA"). South Union (West Virginia) was a member of the Western Pennsylvania Coal Operators Association, a member of the BCOA, and thereby a signatory of the 1974, 1978, and 1981 NBCWAs. When South Union (West Virginia) went into bankruptcy in 1981, it petitioned for leave and was granted leave by the bankruptcy court to reject its obligations under the 1981 NBCWA.

 In October 1993, Unity received a letter from the defendant Trustees of the Combined Fund informing Unity that it had been assigned 78 beneficiaries under the Coal Act for which it was obligated to pay a premium of $ 96,158.84 for the first partial year of operation of the Combined Fund -- from February 1, 1993 to October 1, 1993. Unity was advised that for the second year, from October 1, 1993 to September 30, 1994, it was assigned 76 beneficiaries at a premium of $ 170,681.08. Payment of the premiums was to be made in monthly installments; failure to pay premiums on a timely basis subjects Unity to fines of up to $ 100/day per beneficiary. Unity does not have the cash on hand to pay even the first month's premium, and its net worth is less than its first year obligations.

 Unity was assigned beneficiaries on the basis that the beneficiaries, or their deceased parents or spouses in the case of survivor beneficiaries, had last worked for South Union (Pennsylvania) or South Union (West Virginia) pursuant to a NBCWA.

 III. The Coal Act

 The constitutionality of the Coal Act has been carefully considered -- and upheld -- by a number of courts. See, e.g., In re Chateaugay Corp., 53 F.3d 478, 1995 WL 226252 (2d Cir. April 17, 1995) (affirming district court's decisions upholding the constitutionality of the Coal Act and holding that LTV Steel's Chapter 11 bankruptcy protections did not operate to relieve it of its Coal Act obligations); Barrick Gold Exploration, Inc. v. Hudson, 47 F.3d 832 (6th Cir. 1995) (Coal Act does not violate Substantive Due Process Clause or Takings Clause to the extent that it fails to grant former operators refund, credit or offset for their contractual withdrawal liability payments and their transition rule payments); Templeton Coal Co. v. Shalala, 855 F. Supp. 990, 1995 WL 150439 (S.D. Ind. April 4, 1995) (rejecting plaintiffs' constitutional challenges to the Coal Act and granting defendant's cross-motion for summary judgment); In re Blue Diamond Coal Co., 174 Bankr. 722 (E.D. Tenn. 1994) ("super-reachback" provision of Coal Act not violative of Substantive Due Process or Takings Clauses).

 "In passing the Coal Act, Congress removed the subject of health benefits for current UMW retirees from the collective bargaining process and dealt with it legislatively instead." Barrick, 47 F.3d 832, 1995 WL 73352, at *2. The extensive political and social history which led to the passage of the Coal Act, set forth in detail in In re Chateaugay Corp., 53 F.3d 478, 1995 WL 226252, at *1-7, is quite lengthy and will not be reiterated here. As Magistrate Judge Pesto succinctly put it: "Congress passed the Coal Act to spread the costs of UMWA benefit plans established and funded by the NBCWAs since 1950. Congress did this by imposing liability for the lifetime health (and other) benefits promised in the NBCWAs to members of the UMWA on entities that had previously signed NBCWAs but which were no longer currently operating under a NBCWA." Docket No. 26, at 6.

 The "essential thrust of the Coal Act" was an attempt by Congress to address the financial crisis facing the health benefit plans for UMWA retirees -- by identifying "persons most responsible" for "plan liabilities." In re Chateaugay, 53 F.3d 478, 1995 WL 226252, at *6.

 
The [Coal] Act merged the existing 1950 and 1974 Benefit Trusts into a new private trust fund, the UMWA Combined Benefit Fund ("Combined Fund"). 26 U.S.C. § 9702. Only those retirees actually receiving benefits from the Benefit Trusts as of July 20, 1992, were declared eligible to receive benefits from the Combined Fund. Id., § 9703(f). In allocating financial responsibility for costs of the Combined Fund, Congress determined that "those companies which employed the retirees in question, and thereby benefitted from their services, will be assigned responsibility for providing the health care benefits promised in their various collective bargaining agreements." 138 Cong. Rec. S17,603 (daily ed. Oct. 8, 1992) (reproducing proposed conference committee report). Accordingly, Congress directed the Secretary of Health and Human Services to levy annual health insurance and death benefit premiums on each "assigned operator." 26 U.S.C. §§ 9704, 9705. An "assigned operator" was defined as a signatory to any NBCWA since 1950. Id., § 9701(c)(5). The Secretary of Health and Human Services "assigned" each beneficiary to the signatory operator for whom he or she most recently worked when possible, otherwise to the signatory operator that longest employed the beneficiary. Id., § 9706. Where the signatory operator is no longer in business, the liability for its beneficiaries passes to "related persons," such as successors in interest. Id., §§ 9704(a), 9701(c)(2). The costs of providing health care benefits to the remaining unassigned "orphans" were divided among the assigned operators in proportion to their share of the assigned beneficiaries. Id., § 9704.
 
In sum, the annual premium for an assigned operator equals the sum of the cost of providing health benefits to the company's assigned beneficiaries, its pro rata share of death benefit coverage, and its pro rata share of the cost of health benefits for "orphaned" beneficiaries. The Coal Act restricts liability for medical benefit premiums to companies that (1) signed one or more Wage Agreements between 1950 and 1988, (2) continue to "conduct[ ] or derive [ ] revenue from any business activity, whether or not in the coal industry," and (3) actually employed at least one retiree currently receiving benefits. Id. § 9701(c).

 In re Chateaugay, 53 F.3d 478, 1995 WL 226252, at *6-7.

 IV. Conclusions of Law

 A. Standards for Preliminary Injunction

 "In order to support a preliminary injunction, plaintiff must show both a likelihood of success on the merits and a probability of irreparable harm." Bradley v. Pittsburgh Bd. of Education, 910 F.2d 1172, 1175 (3d Cir. 1990) (citation omitted). "Additionally, the district court should consider the effect of the issuance of a preliminary injunction on other interested persons and the public interest." Id. (citation omitted).

 In order to prove irreparable harm, the moving party "must 'demonstrate potential harm which cannot be redressed by a legal or an equitable remedy following trial.'" Acierno v. New Castle County, 40 F.3d 645, 653 (3d Cir. 1994) (citations omitted). Mere economic loss "does not constitute irreparable harm." Id. Where the evidence shows the probability that the movant will suffer bankruptcy as a result of the challenged conduct, however, injunctive relief may be necessary to prevent irreparable injury. See Doran v. Salem Inn, Inc., 422 U.S. 922, 932, 45 L. Ed. 2d 648, 95 S. Ct. 2561 (1975).

 In this action, it is undisputed that the Coal Act, as applied to Unity, will result in Unity's bankruptcy within the first several months of payments under the Act. The Court finds that such a result constitutes irreparable harm.

 With respect to the "public interest" and the "effect on third parties," the Court agrees with the Magistrate Judge that these factors "weigh neither in favor of or against issuance of an injunction." Docket No. 26, at 2.

 The Court, therefore, must determine whether Unity has demonstrated a "likelihood of success on the merits." In ruling on Unity's constitutional challenges to the Coal Act, it is important to maintain a clear analytical distinction between the Substantive Due Process challenge and the Takings challenge. At times, both the parties and the Magistrate Judge blur the distinctions between the two clauses (and the cases decided under the clauses) in their arguments and conclusions. *fn4"

 B. Substantive Due Process Challenge

 The Coal Act, as applied to Unity, does not violate the Substantive Due Process Clause. This conclusion is compelled by the Supreme Court's decision in Concrete Pipe and Products of California, Inc. v. Construction Laborers Pension Trust for Southern California, 124 L. Ed. 2d 539, 113 S. Ct. 2264 (1993) (employer withdrawal liability under the Multiemployer Pension Plan Amendments Act (MPPAA), as applied to plaintiff, did not violate Substantive Due Process Clause or Takings Clause).

 In Pension Benefit Guaranty Corp. v. R.A. Gray & Co., 467 U.S. 717, 81 L. Ed. 2d 601, 104 S. Ct. 2709 (1984), and Connolly v. Pension Benefit Guaranty Corp., 475 U.S. 211, 89 L. Ed. 2d 166, 106 S. Ct. 1018 (1986), the Supreme Court had previously upheld the MPPAA against constitutional challenges under the substantive component of the Due Process Clause and the Takings Clause. The Concrete Pipe Court held that the employer's Substantive Due Process challenge must be rejected pursuant to the Court's decision in Gray, as well as the Court's decision in Usery v. Turner Elkhorn Mining Co., 428 U.S. 1, 49 L. Ed. 2d 752, 96 S. Ct. 2882 (1976) (rejecting Due Process challenge to Title IV of the Federal Coal Mine Health and Safety Act of 1969, which required operators to compensate miners with Black Lung who left employment in the industry before the effective date of the Act, and the survivors of such employees).

 The Court in Concrete Pipe explained the extremely deferential standard to be applied in Substantive Due Process challenges -- the party challenging the legislation must "establish that the legislature has acted in an arbitrary and irrational way." 113 S. Ct. at 2287-88. The Court stated:

 
In determining whether the imposition of withdrawal liability is rational, then, the relevant question is not whether a withdrawing employer's employees have vested benefits, but whether an employer has contributed to the plan's probable liability by providing employees with service credits. When the withdrawing employer's liability to the plan is based on the proportion of the plan's contributions (and coincident service credits) provided by the employer during the employer's participation in the plan, the imposition of withdrawal liability is clearly rational.

 As the Supreme Court held in Concrete Pipe, Gray, and Usery, as long as Congress has acted rationally, the legislation withstands scrutiny under the Due Process Clause. The Usery Court specifically noted that the wisdom of Congress' actions is not an appropriate inquiry for purposes of Substantive Due Process analysis:

 
The Operators do not challenge Congress' power to impose the burden of past mine working conditions on the industry. They do claim, however, that the Act spreads costs in an arbitrary and irrational manner by basing liability upon past employment relationships, rather than taxing all coal mine operators presently in business. . . . In essence the Operators contend that competitive forces will prevent them from effectively passing on to the consumer the costs of compensation for inactive miners' disabilities, and will unfairly leave the burden on the early operators alone.
 
. . . . But even taking the Operators' argument at face value, it is for Congress to choose between imposing the burden of inactive miners' disabilities on all operators, including new entrants and farsighted early operators who might have taken steps to minimize black lung dangers, or to impose that liability solely on those early operators whose profits may have been increased at the expense of their employees' health. We are unwilling to assess the wisdom of Congress' chosen scheme by examining the degree to which the "cost-savings" enjoyed by operators in the pre-enactment period produced "excess" profits, or the degree to which the retrospective liability imposed on the early operators can now be passed on to the consumer. It is enough to say that the Act ...

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