During first three months of this year, the company reported a net loss of $115.9 million, compared with a loss of $75.3 million over the same time last year.
Union leaders contend Patriot was saddled with unsustainable pension and long-term health care obligations when Peabody jettisoned it as a separate company in 2007, essentially setting it up to fail.
Peabody disputes that. It has said Patriot "was highly successful following its launch more than five years ago" but caught up in the industry undertow that affected all coal producers, including a global financial crisis, development of low-cost shale gas that cut demand for coal and burdensome federal regulation.
Wednesday's ruling did nothing to resolve that debate.
"Was Debtor Patriot Coal Corp. created to fail? Maybe not. Maybe," the judge wrote. "Maybe the executive team involved at (Patriot's) inception thought the liabilities were manageable and thus the reality of Debtors' bankruptcy was more attributed to unwarranted optimism about future prospects."
"The legacy of unfunded retiree medical benefits," she added, "was itself the result of Congressional inaction, a changing manufacturing landscape, and the benign neglect and false hopes of companies and unions alike."
Sens. Jay Rockefeller and Joe Manchin, both D-W.Va., expressed deep disappointment in the decision.
"Once again we are seeing how the bankruptcy system is stacked against the American worker. I will continue fighting to put workers and employers on a level playing field by closing the legal loopholes that allow companies to pad their profits while abusing the legal system to escape from the promises they made," Rockefeller said in a statement.
"It's tragic to watch how some industries treat their workers after they've given much of their lives to these companies."
Manchin called the decision a "travesty."
"It is wrong that Peabody can set up a company such as Patriot, fill that company with its liabilities and then spin that company off for the sole purpose of avoiding its contractual and moral obligations to its workers," he said in a statement on his Senate website.
"I don't think bankruptcy laws were ever designed to shield corporations from their promises and responsibilities."
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