Late yesterday, Bloomberg brought us this interesting tidbit about the Patriot Coal bankruptcy case:

Patriot (PCXCQ) 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.

Interestingly, as the story points out, West Virginia Attorney General Darrell V. McGraw has also joined in the original motion by the United Mine Workers of America to move this case to West Virginia. As we pointed out in a Gazette story a month ago:

Earlier this week, UMW lawyers sought to have the reorganization case moved from U.S. Bankruptcy Court for the Southern District of New York to Southern West Virginia, where they say such issues can be more appropriately handled.

UMW lawyers noted that Patriot’s bankruptcy filing in New York is based at least in part on two New York-based subsidiaries, both of which were created only in June.

“Nobody mines coal in New York,” the union’s lawyers said in court papers. “Significant issues in this case — whether mines are shut, whether employee wages and benefits are cut — will all directly affect the West Virginia economy while having no such effect in New York.”

This case is vitally important to thousands of working UMWA members and thousands more retired miners and families.  UMWA officials say Patriot has 2,000 active union members in West Virginia and Kentucky, along with more than 10,000 retirees and an additional 10,000 dependents, most of them in West Virginia, Indiana, Illinois, Kentucky and Ohio.

In its bankruptcy filings, Patriot seems to be making it clear that it views its union contracts — along with their decent pensions and health-care benefits (or unsustainable labor-related legacy liabilities, as Patriot calls them) — as a drag on the company:

While less than 11.4% of miners currently employed in the U.S. coal industry are represented by the UMWA, more than 42% of the Debtors’ employees are represented by the UMWA.

The NBCWA [National Bituminous Coal Wage Agreement] contains many provisions that restrict the ability of signatory employers to deploy labor and operate their mines in a flexible and cost-effective manner, which puts signatory companies at a cost disadvantage with their union-free competitors. Over the years, an extensive and costly package of pension and non-pension benefits for active and retired miners has evolved under successive NBCWAs, including funding benefits for tens of thousands of retired mineworkers whose employers are no longer in business.

The latest issue of the UMWA Journal (sorry, it’s not online yet, so no link) contains some interesting background on how Patriot got to this point. Under the headline, “The hidden hands behind the Patriot bankruptcy,” the Journal explains:

Patriot’s bankruptcy has been portrayed by many financial and coal industry observers as a result of the industry’s current weaknesses. While the downtown in the marketplace unquestionably played a role in Patriot’s action, the truth is that Patriot was a company created to fail.

“In 2007, Peabody Energy put all of its union mines and some non-union mines in West Virginia and the Midwest, along with the retiree health-care and pension obligations from operating and closed union mines, into a single entity and spun it off into a new company called Patriot Coal,” said [UMWA President Cecil] Roberts. “This was Peabody’s way of trying to get out of its obligation to pay for the pensions and health care of thousands of people who spent their lives working for Peabody.

“But Peabody wasn’t the first company to do that,” Roberts said. “A year and a half before Patriot was created, Arch Coal sold off its union operations in West Virginia — along with the long-term obligations that went with them — to a company called Magnum Coal.

“So here we had two new companies, each with a large burden of long-term financial obligations and not a lot of production capabilities to pay for those obligations,” Roberts said. “Then someone came up with the bright idea to merge these two companies into one, which created an even greater level of long-term contractual obligations.”

The article goes on:

At the same time, Patriot was borrowing money at higher than normal interest rates to meet operational needs and other obligations. The high price of coal, over the past several years meant that Patriot could continue making enough money to meet that debt burden and could keep its stock price high.

But when the bottom dropped out of the coal market, this house of cards — purposely created by Peabody and Arch in an attempt to get out of their responsibilities to their retired and active UMWA workers — collapsed. And that is just what Peabody and Arch intended to happen.

Cecil Roberts commented:

Bankruptcy law is often not a friend to the working people in the United States. So we will have to see what the future holds during this process.

Of course, this is nothing new in the coal industry — we saw it as Massey Energy fought the union and when Pittston Coal tried to shed its obligations for union pensions and health-care benefits in the 1980s. Coal operators were so successful in doing this that Congress had to pass a law to rescue benefits for retired miners and their families. And there’s no question that union officials and others remain concerned about the financial condition of UMWA pension plans.

In their latest book, The Betrayal of the American Dream, legendary investigative reporters Donald Barlett and James Steele describe in great detail the ways in which corporate American and its friends among elected officials have allowed this sort of thing to happen to working people in this country:

For the last three decades, policymakers in Washington and business leaders on Wall Street have betrayed the promise of the American dream—the belief that the United States, anyone who is willing to work hard has a fair chance to succeed. This concept is as important to the history of this country as the Bill of Rights, and in the twentieth century it inspired a large middle class of workers who had every reason to believe that their future was secure and that their children might become even more successful.

Today nearly everyone recognizes that America’s middle class is in crisis, and this book tells why: Since 1980, a series of policies and business strategies specifically crafted to enrich a wealthy few at the expense of everyone else have made it possible to systematically shift the burden of taxes to the middle class, send hundreds of thousands of jobs overseas and eliminate more than 85,000 pension plans.

The wealth gap between average workers and the elite one percent has never been greater, and it’s growing. This disparity is no accident: It’s the direct result of a systematic assault on the middle class in the form of tax policies, trade policies, and banking policies.

One thing that will be interesting to watch as the Patriot situation unfolds is how many of the elected officials and would-be elected officials who talk so much about their love for coal miners will stand up with the UMWA as it tries to protect its retirees. Which side are they on?