Holland v. Williams Mountain Coal Co.

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued January 16, 2007 Decided July 31, 2007

No. 06-7041

MICHAEL H. HOLLAND, AS TRUSTEE OF THE UNITED MINE
WORKERS 1992 BENEFIT PLAN, ET AL.,
APPELLANTS

v.

WILLIAMS MOUNTAIN COAL COMPANY, D/B/A NAOMA COAL
COMPANY, A CORPORATION, ET AL.,
APPELLEES

Appeal from the United States District Court
for the District of Columbia
(No. 96cv01405)

Peter Buscemi argued the cause for appellants. With him
on the briefs were Stanley F. Lechner, Charles P. Groppe, John
R. Mooney, and David W. Allen. Larry D. Newsome entered an
appearance.

Gregory B. Robertson argued the cause for appellees. With
him on the brief were Susan F. Wiltsie, Mary Lou Smith, and
Charles L. Woody.

Before: ROGERS, GARLAND, and BROWN, Circuit Judges.

Opinion for the Court filed by Circuit Judge GARLAND.
 2

GARLAND, Circuit Judge: The trustees of the 1992 United
Mine Workers of America Benefit Plan appeal from an order
directing them to pay attorney’s fees to two coal companies,
Williams Mountain Coal Company and Augusta Processing, Inc.
The companies incurred the fees in the course of defending
themselves against a suit by the trustees to compel them to
provide health benefits coverage for six retired miners. In that
underlying suit, the district court granted summary judgment in
favor of the companies, and we affirmed. See Holland v.
Williams Mountain Coal Co., 256 F.3d 819 (D.C. Cir. 2001).
For the reasons set forth below, however, we reverse the award
of attorney’s fees and remand for further proceedings.

I

Congress established the 1992 United Mine Workers of
America Benefit Plan (the “1992 Plan”) in the Coal Industry
Retiree Health Benefit Act of 1992 (the “Coal Act”), 26 U.S.C.
§ 9701 et seq. See id. § 9712. The 1992 Plan was part of
Congress’ response to the failure of certain coal companies to
pay the health benefits they had promised their miners. See
Williams Mountain, 256 F.3d at 821.

The primary responsibility for financing health benefits for
a retired miner who is entitled to benefits under the Act falls
upon the “last signatory operator,” defined as “the most recent
coal industry employer of such retiree,” 26 U.S.C. § 9701(c)(4),
as well as upon “related persons,” defined to include (among
other things) “a trade or business which is under common
control” with the signatory operator, id. § 9701(c)(2)(A)(ii). See
id. § 9711(a), (c). The Coal Act further provides that “[t]he term
‘last signatory operator’ shall include a successor in interest of
such operator.” Id. § 9711(g)(1) (emphasis added); see also id.
§ 9701(c)(2)(A) (defining a “related person” to “also include a
successor in interest of” a related person). Having allocated this
 3

responsibility, the statute leaves the term “successor in interest”
undefined.1

In 1996, the trustees brought this action against Williams
Mountain and Augusta Processing on behalf of six retired
miners. See 29 U.S.C. § 1451(a)(1) (authorizing a plan fiduciary
who is adversely affected “by the act or omission of any party”
to bring an action for appropriate legal or equitable relief); see
also 26 U.S.C. § 9721(1) (making § 1451 applicable to any
claim arising out of an obligation under the Coal Act). The
trustees contended that the defendant coal companies were liable
for providing health benefits coverage as “successors in interest”
of the last signatory operator, Toney’s Branch Coal Company,
which had employed the miners but had since gone bankrupt.
Although the defendant companies never employed any of the
six miners, after Toney’s Branch withdrew from mining, the
defendants successively operated the same mine where the six
had worked for Toney’s Branch. In operating the mine, the
defendants employed other miners who had worked at the mine
for Toney’s Branch, as well as equipment purchased from a
Toney’s Branch affiliate that Toney’s Branch had previously
used at the mine.

In arguing that the defendant companies were liable for the
retirees’ health benefits coverage, the “trustees urge[d] a broad
definition of successors in interest, namely the ‘substantial
continuity of operations test.’” Williams Mountain, 256 F.3d at
821. That test, which the trustees borrowed from labor and

1
On December 20, 2006, Congress enacted an amendment to 26
U.S.C. § 9701 that provides a specified “safe harbor” from “successor
in interest” status. Pub. L. No. 109-432, § 211(d), 120 Stat. 2922,
3023 (2006) (codified at 26 U.S.C. § 9701(c)(8)). As the amendment
applies only “to transactions after the date” of enactment, id. § 211(e),
120 Stat. at 3023, it has no bearing on the instant case.
 4

employment law, is “a multi-factor inquiry that examines,
among other things, the ability of the predecessor to provide
relief; whether the new employer had notice of potential
liability; whether he uses the same plant, equipment and
workforce; and whether he produces the same product.” Id.
(citing Secretary of Labor v. Mullins, 888 F.2d 1448, 1453-54
(D.C. Cir. 1989)). In opposition, Williams Mountain and
Augusta Processing “urge[d] narrower definitions, drawn both
from general corporate law and from federal tax law.” Id.
Under those definitions, a “party simply acquiring property of
a firm in an arm’s length transaction, and taking up its business
activity, does not become the selling firm’s ‘successor in
interest.’” Id. at 822.2

The district court rejected the trustees’ broad construction
of “successor in interest,” found that the defendant coal
companies did not qualify as successors in interest of Toney’s
Branch under the narrower definition, and granted summary
judgment for the defendants. We affirmed. See Williams
Mountain, 256 F.3d at 825. Although we acknowledged that
“the companies may well be successors in interest to Toney’s
Branch” under the substantial continuity of operations standard
because they “seamlessly took over operations” at the mine, id.
at 821, we concluded that this standard should not apply to
successorship under the Coal Act. The “text and structure of the
[Coal Act] point firmly against successor liability based on

2
Under “the standard corporate law definition[,] [i]n order to be
a ‘successor in interest,’ a party must continue to retain the same rights
as [the] original owner[,] . . . and [a] transferee is not a ‘successor in
interest.’” Williams Mountain, 256 F.3d at 821-22 (quoting BLACK’S
LAW DICTIONARY 1431-32 (6th ed. 1990)). The tax law definition
“shares with the corporate law definition the element of commingled
ownership.” Id. at 822 (citing 26 U.S.C. § 381; 26 C.F.R. § 1.1503-
2A(c)(3)(vii)(B)).
 5

substantial continuity of operations,” we said, which
distinguished the Act from the labor and employment statutes to
which the standard had been applied. Id. at 825. Instead, we
turned to corporate and tax law, and found that the defendants
were “plainly not successors in interest of Toney’s Branch”
under either authority. Id. at 822.

Following our decision in their favor, the defendants filed
motions in the district court requesting attorney’s fees from the
trustees. The court referred the matter to a magistrate judge,
who recommended an award of fees. The district court ruled in
accord with that recommendation, and this appeal followed.

II

Section 9721 of the Coal Act incorporates one of the fee-
shifting provisions of the Employee Retirement Income Security
Act (ERISA), section 4301(e), codified at 29 U.S.C. § 1451(e).
See 26 U.S.C. § 9721. That provision states that “the court may
award all or a portion of the costs and expenses [of litigation],
including reasonable attorney’s fees, to the prevailing party.” 29
U.S.C. § 1451(e). We review for abuse of discretion a district
court’s decision to award such fees. See Board of Trs. of the
Hotel & Rest. Employees Local 25 v. JPR, Inc., 136 F.3d 794,
798 (D.C. Cir. 1998).

In considering the defendants’ request for attorney’s fees,
the district court began with the five-factor test that we
employed in Eddy v. Colonial Life Ins. Co. of Am., 59 F.3d 201
(D.C. Cir. 1995), to determine whether to award attorney’s fees
under another fee-shifting provision of ERISA, 29 U.S.C. §
1132(g)(1).3 The Eddy factors are:

3
As the trustees correctly point out, we have never expressly ruled
that the Eddy factors apply to § 1451(e). In Grand Union Co. v. Food
 6

(1) the losing party’s culpability or bad faith; (2) the
losing party’s ability to satisfy a fee award; (3) the
deterrent effect of such an award; (4) the value of the
victory to plan participants and beneficiaries, and the
significance of the legal issue involved; and (5) the
relative merits of the parties’ positions.

Eddy, 59 F.3d at 206; see id. (noting that the factors are “neither
exclusive nor quantitative, thereby affording leeway to the
district courts to evaluate and augment them on a case-by-case
basis”). In the end, however, the district court determined that
the “only question . . . is whether Plaintiffs’ position, and their
decision to press on with their arguments in support of that
position, were so devoid of merit as to rise to the level of bad
faith.” Holland v. Williams Mountain Coal Co., No. 96-1405,
Mem. Op. at 6 (D.D.C. May 24, 2004) (emphasis added).
Finding “this to be the case,” the court pretermitted examination
of any other factors and awarded the defendants attorney’s fees.
Id. at 10. Accordingly, we turn to an examination of the four
reasons the court and the defendants offer for finding the
trustees’ position “so devoid of merit as to rise to the level of
bad faith.” Id. at 6.

1. We begin with the defendants’ claim that the trustees
“pursued an action . . . on a legal theory at odds with prevailing
law.” Appellees’ Br. 13. The district court did not rely on this
argument -- and correctly so. When this lawsuit was initiated in
1996, there was no “prevailing law” regarding the meaning of
“successor in interest” as it appears in the Coal Act. At that

Employers Labor Relations Ass’n, 808 F.2d 66, 71-72 (D.C. Cir.
1987), the court assumed without deciding that factors like those
identified in Eddy applied to § 1451(e). We need go no further than
that to resolve their appeal.
 7

time, neither this circuit nor any circuit had ruled on the
question.

It is true, as the defendants note, that a West Virginia
district court, reviewing a bankruptcy court proceeding, had
ruled on the issue. See UMWA 1992 Benefit Plan v. Leckie
Smokeless Coal Co., 201 B.R. 163 (S.D. W. Va. 1996). The
West Virginia court, applying a definition of “successors in
interest” found in Internal Revenue Service regulations, held
that “purchasers of assets in bankruptcy cannot be ‘successors
in interest’ because . . . they do not inherit the tax attributes of
their predecessors.” Id. at 171. That ruling was on appeal when
the trustees filed their complaint, and was later affirmed on
grounds unrelated to the definition of “successor in interest.”
See In re Leckie Smokeless Coal Co., 99 F.3d 573 (4th Cir.
1996).4

It is also true that, after our own district court issued its
judgment, and while the case was pending on appeal to this
court, the United States Court of Appeals for the Sixth Circuit
reached a decision in accord with that of the West Virginia
district court. See Holland v. New Era Coal Co., 179 F.3d 397,
403 (6th Cir. 1999). On appeal, we cited the Sixth Circuit’s
conclusion in reaching our own. See Williams Mountain, 256
F.3d at 822.

4
The Fourth Circuit stated: “The courts below determined that
the purchasers of Appellees’ assets would not be Appellees’
successors in interest within the meaning of the [Coal] Act. We need
not and do not now resolve the matter, having concluded that, even if
[the purchasers were] successor[s] in interest, the Bankruptcy Court
may extinguish Coal Act successor liability.” Leckie Smokeless Coal
Co., 99 F.3d at 585.
 8

But these cases cannot alone support a charge that the
trustees acted in bad faith. Decisions of the Southern District of
West Virginia and of the Sixth Circuit do not bind this court.
Such decisions may, of course, influence our own decisions
because of their persuasive force -- as indeed happened here --
but the fact that another jurisdiction has rejected a legal theory
does not render it so devoid of merit as to make reliance on it an
exercise in bad faith. It is hardly unusual for courts of appeals,
including this court of appeals, to disagree with their sister
circuits. To the contrary, such circuit splits are an important
font of the Supreme Court’s workload.

2. In the view of the district court, the trustees’ suit was
devoid of merit because it was without “factual predicate.”
Mem. Op. at 7. According to the court, there was no factual
basis for the trustees’ contention that the defendants were
successors in interest to Toney’s Branch, because the defendants
had no corporate ties to the latter. Moreover, the trustees
assertedly knew that was so, as their own investigation had
“turned up no information at all indicating [a] special
relationship” between the companies. Id. at 7. Instead, the
“only thread tying Defendants to Toney’s Branch turned out to
be Defendants’ purchase of mining equipment from Toney’s
Branch, their hiring of some of Toney’s Branch’s former
employees, and their operation of the same mine.” Id. at 7-8.
This, the court said, was insufficient.

The problem with this analysis is that it assumes the narrow
corporate and tax law definitions of successors in interest. But
as our opinion on the merits recognized, the very factual thread
the district court discounted -- the purchase of equipment, the
hiring of employees, and the operation of the same mine --
might well have made the defendants successors in interest of
Toney’s Branch under the broader, substantial continuity of
operations test. See Williams Mountain, 256 F.3d at 821.
 9

Although we ultimately rejected that test, we have emphasized
that “a loss on the merits does not mean that legal arguments
advanced in the context of our adversary system were
unreasonable.” Taucher v. Brown-Hruska, 396 F.3d 1168, 1174
(D.C. Cir. 2005) (reversing an award of attorney’s fees under the
Equal Access to Justice Act (EAJA)); see Christiansburg
Garment Co. v. EEOC, 434 U.S. 412, 421-22 (1978) (warning
that courts must “resist the understandable temptation to engage
in post hoc reasoning by concluding that, because a plaintiff did
not ultimately prevail, his action must have been unreasonable
or without foundation”). Hence, whether there was a reasonable
factual predicate for the trustees’ suit depends entirely upon
whether there was a reasonable legal theory to which that
predicate could be tied.

3. The district court found the trustees’ legal theory
meritless because it thought their broad definition of “successor
in interest” was at odds with the statutory text, which appeared
to assign separate meanings to “successor in interest” and
“successor.” Under the Coal Act, “successors in interest” are
required to share liability with last signatory operators, see 26
U.S.C. § 9711(g)(1), while “successors” are permitted “to
assume[,] by contract[,] liability for health benefits owed to
retirees,” Williams Mountain, 256 F.3d at 822; see 26 U.S.C. §
9711(g)(2). In its decision in the underlying lawsuit, the district
court concluded that the trustees’ broad definition would render
the two interchangeable, and hence redundant, and therefore
rejected the trustees’ definition.

On appeal, we agreed. We acknowledged the trustees’
argument that Coal Act § 9711(g)(1), which defines “last
signatory operator” to include “successor in interest,” is simply
headed “Successor.” Williams Mountain, 256 F.3d at 822. But
we rejected the use of “a heading, which normally is a kind of
shorthand, to justify stripping the actual text of two words, ‘in
 10

interest,’” which we thought were “obviously included
deliberately.” Id. We concluded that “[t]he natural reading is
that Congress intended ‘successors’ in subsection (g)(2) to
include a broad[er] class of persons, e.g., firms that take over
mining operations from others, and are not liable as a matter of
law, but assume liability by contract with the seller to suit the
mutual convenience . . . of the contracting firms.” Id.

This did not, however, end our analysis. While we
concluded that “the text and structure of § 9711 point powerfully
toward the [defendants’] position,” id. at 823, we credited the
trustees’ argument “that courts have often used the substantial
continuity test to determine successor liability in federal statutes
(particularly those adopted for the protection of employees),
even when those statutes include no language directly
supporting liability for successors of any kind,” id. at 824. And
as we further noted, “statutory interpretation proceeds on the
assumption that Congress’s choice of words reflects a familiarity
with judicial treatment of comparable language.” Id. (citing
Traynor v. Turnage, 485 U.S. 535, 545-46 (1988)). Because we
could “[]not say, without some consideration of the cases using
substantial continuity, that the trustees’ claim [was] a priori
wrong,” we proceeded to a review of the origins of that test. Id.
at 824. In short, before we could determine whether there was
merit to the trustees’ reliance on the substantial continuity test,
we thought it necessary to examine the circumstances in which
the test had previously been applied. We must do the same here.

Our previous opinion’s review of the “origins of the
substantial continuity test” began by noting that, under “the
traditional rule on corporate successorship liability, a
corporation that acquires manufacturing assets from another
corporation does not thereby assume the liabilities of the seller.”
Id. We observed, however, that in tort cases, although the
majority of courts still follow the traditional rule, “some courts
 11

have” employed “the substantial continuity of operations test
advocated by the trustees” in order to protect plaintiffs. Id. at
825 (emphasis added). Moreover, we further noted that, in “the
context of federal statutes whose primary beneficiaries are
employees,” it “appears that most courts invoke the substantial
continuity test.” Id. at 825 (emphasis added).

“This departure from the traditional rule,” we said, “was
sparked by four Supreme Court cases, two involving disputes
under the National Labor Relations Act (‘NLRA’) and two the
Labor Management Relations Act (‘LMRA’).” Id. (citations
omitted).5 This circuit, we recognized, has followed those cases
in applying the substantial continuity test to the NLRA. See id.
at 826 (citing Harter Tomato Prods. Co. v. NLRB, 133 F.3d 934,
936-37 (D.C. Cir. 1998)). In addition, “[a]lthough the four cases
concerned the core labor relations statutes,” we found that “the
reasoning has been used to find broad successor liability under
other statutes that govern employees’ rights whether they
explicitly address successor liability or not.” Id. at 825.6 This
circuit has followed that path as well. See id. at 821 (citing
Secretary of Labor v. Mullins, 888 F.2d 1448, 1453-54 (D.C.
Cir. 1989), in which we applied the substantial continuity test to
the Mine Safety and Health Act).

5
See Howard Johnson Co. v. Detroit Local Joint Executive Bd.,
Hotel & Rest. Employees & Bartenders Int’l Union, 417 U.S. 249
(1974); Golden State Bottling Co. v. NLRB, 414 U.S. 168 (1973);
NLRB v. Burns Int’l Sec. Servs., Inc., 406 U.S. 272 (1972); John Wiley
& Sons, Inc. v. Livingston, 376 U.S. 543 (1964).
6
See Williams Mountain, 256 F.3d at 825-26 (citing cases from
numerous circuits finding broad successor liability under the Vietnam
Era Veterans’ Readjustment Assistance Act, the Family Medical
Leave Act, Title VII, the Civil Rights Act of 1866, and the Age
Discrimination in Employment Act).
 12

In the final analysis, we concluded that the large number of
cases that have employed the substantial continuity test were
distinguishable because “the text and structure” of the statutes
at issue in those cases did not “point firmly against successor
liability based on substantial continuity” as they did in the Coal
Act. Id. at 825. But given how often that test has been applied
to analogous statutes in both this and other circuits, we cannot
say that it was an act of bad faith for the trustees to urge its
application to the Coal Act. We certainly cannot say so in a case
of first impression not only in this circuit, but in virtually every
other jurisdiction as well.

4. Finally, the district court’s determination relied in part
on the fact that, while the trustees sued Williams Mountain and
Augusta Processing, they failed to sue Imperial Leasing
Company -- another coal company that, unlike the defendants,
was owned by the same individuals who owned Toney’s Branch.
This common ownership, the district court held, made Imperial
Leasing “a far more appropriate defendant” and the suit against
Williams Mountain and Augusta Processing “untenable.” Mem.
Op. at 7.

But the Coal Act does not limit a plaintiff to a suit against
the “more appropriate defendant.” It is true, as the defendants
point out, that the purpose of the Act was “to assign the duty of
paying premiums ‘to persons most responsible for plan
liabilities.’” Williams Mountain, 256 F.3d at 823 (emphasis
added) (quoting 26 U.S.C. § 9701 note). But as the statutory
text indicates, Congress determined that “the persons most
responsible” were the last signatory operators, related persons,
and successors in interest, and it made them all “jointly and
severally liable.” See 26 U.S.C. § 9711(c), (g)(1). This means
that the trustees were free to sue any party who reasonably fell
within those categories, and that they were likewise free to sue
some potential defendants and to settle with others. (In fact, the
 13

trustees ultimately did settle with Imperial Leasing. See
Appellants’ Br. 30.) Because we have concluded that it was
reasonable for the trustees to regard Williams Mountain and
Augusta Processing as successors in interest, their decision not
to sue Imperial Leasing cannot be taken as an indicator of bad
faith.

III

The district court’s conclusion that the trustees’ legal theory
was completely without merit was no doubt due in part to the
language of our own prior decision. Like other judges, we too
aspire to write opinions like those that Judge Friendly said
Justice Brandeis wrote: opinions in which “‘the right doctrine
emerges in heavenly glory and the wrong view is consigned to
the lower circle of hell.’” Taucher, 396 F.3d at 1173-74 (citing
HENRY J. FRIENDLY, Mr. Justice Brandeis -- The Quest for
Reason, in BENCHMARKS 291, 294 (1967)). But as we have
previously cautioned, although one panel may characterize a
litigant’s position as “patently erroneous,” another panel equally
unpersuaded by the same argument may use words like
“unsupported,” “unconvincing,” or “without merit.” Halverson
v. Slater, 206 F.3d 1205, 1212 (D.C. Cir. 2000) (internal
quotation marks omitted). And yet, neither may intend to
suggest that the argument in question was not “substantially
justified.” Id. (applying a provision of the EAJA that denies
attorney’s fees to a prevailing party if the position of the United
States was “substantially justified”).

In our previous opinion in this case, we did say that there is
“‘no warrant whatever for broad successor liability’” under the
Coal Act. Mem. Op. at 10 (quoting Williams Mountain, 256
F.3d at 826). But as noted above, before reaching that
conclusion, we also declared that “we cannot say, without some
consideration of the cases using substantial continuity, that the
 14

trustees’ claim is a priori wrong.” Williams Mountain, 256 F.3d
at 824. That is not the language we typically use to mark a
claim as devoid of merit.

Nor could we have done so here. As we have discussed,
this was a case of first impression, in which the trustees urged
upon us a test that “most courts invoke” in “the context of
federal statutes whose primary beneficiaries are employees.” Id.
at 825. The Coal Act is such a statute. Hence, this was not a
case the plaintiffs “lost because [they] vainly pressed a position
flatly at odds with the controlling case law,” but rather one they
“lost because an unsettled question” as to which they had a
reasonable position “was resolved unfavorably.” Taucher, 396
F.3d at 1174 (internal quotation marks and citation omitted).

Because the district court made clear that it rested its
decision to award attorney’s fees solely upon its determination
that the trustees brought their underlying suit in bad faith, we
need not belabor our discussion with an examination of the other
Eddy factors. As both parties agreed at oral argument, a
determination that the court erred in finding the suit so meritless
as to have been brought in bad faith requires us to reverse the
award as an abuse of discretion. See Oral Arg. Recording at
11:50, 29:59. Moreover, where as here the issuance of an award
requires the exercise of a district court’s discretion, and where
we disagree with the ground upon which the district court relied,
our usual course is to reverse and to remand the case to that
court for further proceedings. Accordingly, the judgment of the
district court is

Reversed and remanded.