West Virginia Record

Thursday, February 27, 2020

'Consumers for Justice' files bankruptcy in wrong court

By Steve Korris | Sep 21, 2006

CHARLESTON – West Virginia Consumers for Justice, supporters of Warren McGraw in his unsuccessful run for the West Virginia Supreme Court of Appeals in 2004, made a mistake last month by declaring bankruptcy in federal court here.

Attorney Joseph Caldwell acknowledged the error Sept. 11. He wrote that the group's petition belonged in federal court in Virginia.

Two days later U.S. Bankruptcy Judge Ronald Pearson of Charleston struck the petition from his docket for lack of jurisdiction.

Massey Energy president Don Blankenship had challenged Caldwell's decision to file the bankruptcy petition in West Virginia.

In the petition West Virginia Consumers for Justice reported assets of $1,534 and potential liabilities of more than $300 million.

The liabilities stem from a defamation suit that Blankenship and Massey Energy filed in Fairfax County, Va., after the 2004 campaign.

Blankenship alleged that McGraw supporters defamed him and his company in television advertisements.

In the campaign Blankenship had supported McGraw's opponent, Brent Benjamin, who won a seat on the Supreme Court of Appeals.

Blankenship's suit named West Virginia Consumers for Justice president Kenneth Perdue as a defendant, among others.

Perdue's attorney, Rachel Shanahan of Washington, D. C., removed the suit to federal court in Virginia.

She identified Blankenship as a disputed creditor of Consumers for Justice and Massey Energy as an unsecured nonpriority creditor.

She identified Perdue as a contingent creditor, "in light of possible contribution and indemnification claims arising from this litigation."

She wrote that Perdue's claims could affect a bankruptcy estate if Blankenship and Massey Energy prevailed.

Caldwell filed a bankruptcy petition for Consumers for Justice in Charleston Aug. 10.

The next day he filed notice that he would remove Blankenship's Virginia suit to the bankruptcy court in Charleston.

Three days later Caldwell told the court in Charleston that Perdue would retain him in the bankruptcy. That stuck Perdue in a tug of war with himself.

Blankenship moved Sept. 1 to strike the notice of removal to the Charleston court.

Scott Barnette of the Jackson Kelly firm in Charleston wrote that laws and rules permit removal only from state court to federal court where the state action is pending.

He wrote, "Removal to any other federal district is a nullity."

Caldwell could not argue otherwise. In response to Barnette's motion he acknowledged that removal was improper.

He wrote, "West Virginia Consumers for Justice has consented to the Perdue removal."

West Virginia Consumers for Justice has never identified the sources of its campaign cash, and in the few weeks that the bankruptcy petition remained in Charleston another layer of mystery attached to the group.

Consumers for Justice placed its 2005 tax return in the court file but blocked it from public view.

According to a note on the docket, the tax return "contains sensitive information."

The group's 2004 tax return indicates that it acted as a nonprofit political organization without receiving a nonprofit certificate from the Internal Revenue Service.

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West Virginia Supreme Court of Appeals