WEST VIRGINIA RECORD

CHARLESTON – The state Supreme Court recently ruled against former shareholders of Massey Energy that claimed its former board of directors was in violation of a 2008 settlement.

The court ruled that under Delaware law, the plaintiffs were without standing to pursue their claims. Justice Menis Ketchum authored the court’s majority opinion, and Justice Robin Davis dissented.

The decision, which was released a week after Sept. 4 oral arguments, affirmed Kanawha County Circuit Court Judge James C. Stucky’s ruling on the Massey defendants’ motion to dismiss.

“Upon review, this Court is in agreement with the circuit court,” Ketchum wrote.

“The two contempt petitions, which raised compliance issues with regard to the June 30, 2008, settlement order, while suggesting indirect harm to the petitioners, alleged, in reality, claims against the respondents for the benefit of the former Massey Energy Company.

“Therefore, as in the underlying action, the two contempt petitions were grounded on derivative claims.”

A 2008 corporate governance agreement settled claims first made in July 2007 that the Massey’s board of directors and some officers breached their fiduciary duties by consciously failing to enforce certain environmental and worker-safety laws and regulations.

Eleven days after the 2010 explosion at Upper Big Branch Mine that killed 29 miners, the shareholders claimed the defendants were in violation of the CGA because Massey’s 2008 Corporate Social Responsibility Report “contains no report on the Company’s… worker safety compliance,” as required by the CGA.

Massey was sold to Alpha Natural Resources in 2011. Massey’s entire board of directors was replaced, and Stucky ruled the CGA was rendered inoperative.

Manville Personal Injury Settlement Trust, Amalgamated Bank and California State Teachers’ Retirement System were the former shareholders appealing Stucky’s ruling. They were represented by attorneys from Motley Rice, and Badge Humphries handled oral arguments.

Those sued included Don Blankenship, the former chairman and CEO of Massey; several former members of the board of directors; J. Christopher Adkins, the former senior vice president and chief operating officer; and M. Shane Harvey, the former vice president and general counsel.

Their brief said the court must not focus on the explosion, as the petitioners’ brief does, and decide two questions: Whether the petitioners lost their standing when they voluntarily relinquished their Massey shares and whether the respondents are no longer in a position to cause Massey to comply with the 2008 order.

“Massey is a Delaware corporation; thus, any right of Petitioners to bring suit on behalf of Massey is governed by Delaware law,” the brief says.

“Under well-settled Delaware law, to have standing to maintain a derivative action, a plaintiff must maintain shareholder status throughout the entirety of the litigation.”

The majority of the court agreed.

“The terms of the 2008 settlement provided that the settlement was to be construed under West Virginia law,” Ketchum wrote.

“However, this contempt proceeding strictly concerns derivative shareholder claims and the viability of those claims in view of the corporate merger.

“The June 30, 2008, settlement order expressly provided that the settlement was to be enforced derivatively. Massey, now known as Alpha Appalachia Holdings, and Alpha Natural Resources were incorporated in Delaware, and the present controversy requires a sorting out of the derivative claims of the petitioners in complex circumstances involving each company.”

Chief Justice Brent Benjamin did not participate in the case. The U.S. Supreme Court ruled in 2009 that Benjamin should have recused himself in a case against Massey because Blankenship spent several million dollars supporting his 2004 campaign.

Taking his place on the bench was former Justice Thomas McHugh, who was the most inquisitive of the group during oral arguments.

He asked the plaintiffs, among other things, where any damages should be distributed, what case law supports damages to shareholders and if Alpha, which says it became the sole shareholder of Massey when it bought the company, would be left out.

From the West Virginia Record: Reach John O’Brien at jobrienwv@gmail.com.