Judge denies motion to dismiss suit by former Massey investors
Jessica M. Karmasek Mar. 29, 2012, 5:20am
BECKLEY - A federal judge this week denied a motion to dismiss a lawsuit by former Massey Energy shareholders.
Judge Irene Berger, of the U.S. District Court for the Southern District of West Virginia, filed her 47-page memorandum opinion and order Wednesday.
The lead plaintiff in the case, Commonwealth of Massachusetts Pension Reserves Investment Trust, alleges that the price of Massey stock was artificially inflated between Feb. 1, 2008 and July 27, 2010 because Massey and several of its senior executives and directors misled the market about its safety and compliance record and its disregard for safety regulatory compliance.
Twenty-nine miners lost their lives in the April 5, 2010 explosion near Montcoal in Raleigh County.
The explosion at the Upper Big Branch Mine, then owned by Massey, was the worst U.S. coal mining disaster in 40 years.
"The explosion and the cause of the explosion revealed to the market the fraudulent nature of which Plaintiffs complain, specifically, that Defendants mislead the market about the safety at its mines and its commitment to put production over safety," Berger wrote.
The shareholders' lawsuit was filed days after the disaster, on April 29, 2010.
Massey later admitted, in a Sept. 30, 2010 letter to its shareholders, that the sole safety metric, which it had reported to investors during the class period regarding incident rates, was "materially understated" for 2007, 2008 and 2009 due to lapses in reporting procedures determined by an independent consultant.
On Dec. 3, 2010, after running the company for 20 years and following public outcry for Massey's disregard for mine safety, CEO Don Blankenship resigned.
On Jan. 29, 2011, Alpha Natural Resources Inc., based in Virginia, agreed to buy Massey for more than $7 billion.
"While it is reasonable for an investor of a mine company to assume that there will be some regulatory violations at a given mine and that various aspects of the mining industry may require temporary shutdowns of that mine (which will impact production), it cannot be said that a reasonable investor would appreciate the regulatory risk of a mining company or its impact on production when that company consistently only discloses one safety measurement metric, and has not disclosed any details about its regulatory compliance," Berger wrote.
Plaintiffs' attorney Joel Bernstein told The Associated Press in January that investors might have spent differently if Massey had been required to report serious violations to the U.S. Securities and Exchange Commission.
Federal law now requires mining companies to do so.