The federal suit was filed in a West Virginia district court on behalf of 10,000 retirees and active workers whose health care and pension benefits Peabody and Arch transferred to Patriot before the latter’s Chapter 11 bankruptcy reorganization.

The suit maintains that Peabody and Arch “planned to transfer (their) employees and benefit plan obligations to Patriot for the purpose of depriving (their) employees and retired employees of their welfare and retiree benefits.”

UMWA president Cecil Roberts said Peabody and Arch established separate spin-off companies, which eventually became Patriot, with the publicly state intention of getting rid of their obligations to retirees.

“The companies bragged about getting those liabilities off their balance sheets,” he said.

“And as people with long experience in the coal industry, they knew that the cyclical nature of the industry would inevitably lead to Patriot’s inability to pay those liabilities.

“It was a company set up to fail. But under the law, that does not relieve Peabody and Arch of their obligation to these retirees, their spouses and their widows.”

In its complaint, the UMWA cited the Employee Retirement and Income Securities Act, which makes it unlawful to discriminate against beneficiaries of an employee benefit play in order to interfere with attainment of rights under the plan.

In an ILN interview earlier this month, Peabody spokeswoman Meg Gallagher said that contrary to UMWA claims, one of the company’s subsidiaries has assumed obligation to pay more than $600 million in healthcare liabilities under the spin-off.

“While these are administered by Patriot, Peabody has paid for these healthcare benefits since the spin-off and continues to do so today,” Gallagher said.

“The UMWA was fully aware of the plan regarding retiree healthcare benefits at the time of the spin-off and assented to the payment arrangement. And, contrary to union claims, Patriot was a viable company when it was spun off in 2007, and substantial events inside and outside Patriot’s control significantly altered its future.”

Gallagher went on to say that the company and the world had significantly changed since October 2007, when the Patriot spin-off came into existence.

“These changes include Patriot’s transformational acquisition of Magnum Coal Company, significant changes in Patriot’s capital structure, decreased demand for US coal due to sharp declines in natural gas prices, the softening of global steel markets and more burdensome regulations,” she said.

“Patriot notes many of these same factors in its filings with the bankruptcy court.”

On July 9, 2012, Patriot announced that the miner and its wholly owned subsidiaries had filed for Chapter 11 bankruptcy.

Following this news, the price of Patriot shares dropped 72%, from a closing of $US2.19 per share on July 6 to 61c per share on July 9.

The UMWA has been very vocal on the topic since the bankruptcy filing was first announced and has been critical of its filing in the state of New York. It is fighting to see the reorganization moved to the Southern District of West Virginia because it is “a case about coal and coal miners who live here in the coalfields”, Roberts said last month.

“No one has ever mined an ounce of coal in Manhattan. Setting up dummy corporations to cherry-pick a legal venue, like Patriot did, is morally wrong.

“This case belongs in Charleston, not Manhattan.”

He also said recently that the UMWA would strike if it had to.

Patriot holds 12 active mining complexes in Appalachia and the Illinois Basin, and controls about 1.9 billion tons of coal reserves.