Photographer: Luke Sharrett/Bloomberg

Coal Producer Peabody Can Look to the Future Without Paying for the Past

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  • Judge rules company not liable for role in global warming
  • After 2016 bankruptcy, miner gets ‘fresh start’; shares jump

While the future of American coal production is anything but clear, at least Peabody Energy Corp. is for now off the hook for liabilities related to its role in global warming.

The company’s 2016 bankruptcy protects it from lawsuits brought in California State court by Marin County, San Mateo County and the city of Imperial Beach, said St. Louis Judge Barry Schermer, who oversaw the Chapter 11 case. The plaintiffs alleged that Peabody is among about 40 companies responsible for extracting fossil fuels that created 20 percent of carbon dioxide emissions over a 50-year period.

"They did not file a proof of claim or otherwise participate in the case,” Schermer said in his Tuesday ruling, which found the counties, like other creditors, would have needed to raise their issue before an October 2016 deadline to file claims.

While the counties had argued that Peabody’s language had an exception for "police or regulatory law," which should include government’s oversight of the health, safety and welfare of their residents, the judge said their interests were purely financial.

After rising 2 percent in after-hours trading, Peabody shares jumped as much as 5.6 percent in New York on Wednesday as the company reported earnings that topped analysts’ estimates. Peabody kicked off a reporting cycle that is expected to show positive results for an industry beset by financial losses and bankruptcies in recent years.

Legal Debate

The Peabody dispute highlights a clash between bankruptcy law, which is designed to help companies start over with a fresh slate, free of past liabilities, and environmental law, which is supposed to let the government pursue polluters through different corporate incarnations. In a landmark lawsuit involving Anadarko Petroleum Corp., Kerr-McGee Corp. and Tronox Ltd., a New York judge found bankruptcy didn’t help avoid billions in clean-up costs.

The Peabody outcome is likely to affect Arch Coal Inc., which also recently went through bankruptcy. The miner, also named in the three lawsuits, joined Peabody in asking the court to find that its Chapter 11 reorganization means it has a “fresh start” and doesn’t have to face lawsuits seeking damages for its contribution to global warming.

St. Louis-based Peabody was sued in July together with global energy companies such as Exxon Mobil Corp. and Royal Dutch Shell Plc. The suit says the companies have known since at least 1965 that their activities were changing the climate, and that there was only a narrow window of time to reverse from a catastrophic course.

‘Extreme Flooding’

Instead, they “engaged in a coordinated, multi-front effort to conceal and deny their own knowledge,” discredit scientific evidence and mislead the public, San Mateo County said in its suit.

The global warming caused by the burning of fossil fuels extracted by the defendants is expected to lead to “extreme flooding” on California’s coast by 2050, the suits allege.

Peabody called the lawsuits “meritless” and argued that its Chapter 11 bankruptcy gave it a “discharge” from liabilities that arose prior to it. It accused the counties of trying to “wait out” its bankruptcy in an attempt to avoid the discharge.

The St. Louis court approved the 134-year-old coal company’s reorganization in April. Since then, other environmental troubles have reared up; in September, a U.S. appeals court ruled that the federal government needs to revise an analysis of how extending the life of two Wyoming coal mines -- one belonging to Peabody -- might affect climate change, reversing an earlier ruling. The two mines account for almost 20 percent of annual U.S. coal production.

The case is In re Peabody Energy Corp., 16-42529, U.S. Bankruptcy Court, Eastern District of Missouri (St. Louis).

— With assistance by Tim Bross

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