Patriot Coal Case Shouldn’t Be in New York, U.S. Says

Patriot Coal Corp.’s bankruptcy case should be moved out of Manhattan because the company can’t show it didn’t create two new units with the sole purpose of avoiding other bankruptcy courts, the U.S. said.

The case should be moved “in the interests of justice,” said the U.S. Trustee, an arm of the Justice Department that oversees bankruptcies. The trustee’s request, filed today in Manhattan, where the coal producer’s Chapter 11 case is under way, didn’t specify a new court and joins motions from objectors who say St. Louis-based Patriot’s case should be heard in the Southern District of West Virginia.

The West Virginia attorney general, the United Mine Workers union, environmental regulators and insurance companies have all said they support moving the case. They contend the company’s only connection with New York came within five weeks of its bankruptcy, when two subsidiaries were incorporated under that state’s law.

“Although there are nearly 100 affiliated debtors in the Patriot Coal cases, as recently as six weeks before the bankruptcy filings, not a single (then existing) Patriot company satisfied any of the requirements” for having a bankruptcy in New York, wrote Tracy Hope Davis, the acting U.S. trustee.

The company created two non-operating units using the same lawyers that they hired to represent them in bankruptcy “in an apparent effort to meet the statutory requirements,” she said.

Appalachian Mines

Patriot has 12 active mining complexes in Appalachia and the Illinois Basin and controls an estimated 1.9 billion tons of coal reserves, according to court papers. It sells thermal coal to electricity generators and metallurgical coal to steel and coke producers.

The company’s facilities, employees, retirees and creditors are largely located in West Virginia, and conducting its bankruptcy in New York makes it more difficult for the company’s 2,000 active employees and more than 10,000 retirees to participate in the case, the United Mine Workers said. West Virginia has a greater economic interest in the outcome of the case, as most creditors are there, the union said in court papers.

The Department of Natural Resources in Kentucky has joined the mine worker’s motion, citing the company’s mining activities in Kentucky, and the state of West Virginia has said it has an interest in whether the company sells or abandons its property in that state.

The case is In re Patriot Coal Corp., 12-bk-12900, U.S. Bankruptcy Court, Southern District of New York (Manhattan).