By Tim Bross and Nick Brown
ST. LOUIS/NEW YORK (Reuters) - Arguments got under way on Monday over the fate of healthcare and pension benefits for unionized workers of Patriot Coal Corp
The morning began with Patriot's contention that Peabody Energy Corp
In an afternoon session, Patriot was expected to begin arguments supporting its proposal to cease pension contributions and convert healthcare funding to a voluntary employees' beneficiary association, or VEBA.
Patriot filed for bankruptcy in July 2012, and has said it must cut $150 million in annual employee obligations to regain profitability. It argued on Monday that Peabody, which is still profitable, should foot the bill for the roughly 13,000 current and retired union workers and their dependents.
Judge Kathy Surratt-States, of U.S. bankruptcy court in St. Louis, said she would not rule on that question today.
"What Peabody is doing is wrong, just plan wrong," Jonathan Martin, an attorney for Patriot, told the court.
Peabody in a statement said it lived up to its obligations when it spun off Patriot. "This is a matter between the union and Patriot Coal," the company said.
On Monday afternoon, arguments were expected to turn to the substance of Patriot's proposed cuts, and whether they are necessary for the company's survival.
Patriot has offered to cease pension contributions and convert healthcare to a VEBA funded by $15 million in up-front cash and $300 million in profit-sharing contributions. The union would receive a 35 percent equity stake in post-bankruptcy Patriot, which it could sell to help fund the VEBA.
Under bankruptcy law, if companies cannot negotiate compromises with unions, they can seek court permission to impose cuts unilaterally. But the companies must show that the cuts are crucial to survival and that a good-faith effort has been made to achieve them cooperatively.
The United Mine Workers of America has called the cuts "nowhere near" fair. The union has also argued that Peabody should shoulder the cost if Patriot cannot, filing a separate lawsuit on that issue in a West Virginia federal court.
The union on Monday rallied in St. Louis, home to Peabody, where 16 protesters were arrested, the union said in a statement.
Conflicting reports left the scope of the rally unclear.
The union said the rally attracted about 6,000 people, most of them mine workers. That's more than the 4,000 or so protesters the union was expecting, union spokesman Phil Smith said.
But police estimated only about 2,000 people took part in the event, said Schron Jackson, spokeswoman for the St. Louis Metropolitan Police Department.
Jackson, who was at the event, said the union's estimate seemed far too high.
The union stood by its figure as of late on Wednesday afternoon. "Two-thousand people alone came on buses that UMWA brought, and six other organizations brought multiple buses," Smith said.
Inside the courtroom, about half of the 60 seats were occupied by miners and their families, many wearing t-Shirts saying "Peabody promised, Patriot lied."
Because employees' claims in bankruptcy are subordinate to secured debt like loans and bonds, worker benefits are often the first place bankrupt companies look for cost savings.
This is especially pertinent in the coal industry, where benefits for generations of retirees are shouldered by an ever-shrinking workforce.
Patriot is expected to call witnesses, with the union then beginning a rebuttal with its own set of witnesses. The process could go all week.
Peabody, which retained profitable coal mines throughout the United States and Australia after the spinoff, loaded Patriot up with pension and benefit liabilities for retirees when it spun off Patriot, many of whom retired before the spinoff and never worked for Patriot.
In its statement, Peabody said Patriot was "highly successful" following the spinoff and had "significant assets" that helped its market value "quadruple in less than a year."
Led by Cecil Roberts, the union has staged protests in New York, Appalachia and St. Louis since Patriot declared bankruptcy in July.
Patriot also has several thousand non-union employees, with whom it reached new, consensual labor terms last week.
The bankruptcy is In Re Patriot Coal Corp, U.S. Bankruptcy Court, Eastern District of Missouri, No. 12-51502.
(Reporting by Nick Brown in New York and Tim Bross in St. Louis; Editing by Eddie Evans, Sofina Mirza-Reid and Carol Bishopric)