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WEST VIRGINIA RECORD

Friday, March 29, 2024

Supreme Court rules former Massey shareholders' lawsuit in mine explosion rightfully dismissed

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CHARLESTON—The West Virginia Supreme Court of Appeals ruled that former shareholders of Massey Energy Company lacked standing to pursue a derivative shareholder lawsuit related to a deadline mine explosion in 2010.

The Supreme Court agreed with Kanawha Circuit Court in its dismissal of an amended complaint and denial of a motion to leave to file a second amended complaint, according to a May 25 opinion.

Justice Allen Loughry authored the majority opinion. Justice Robin Jean Davis deemed herself disqualified and did not participate. Kanawha Circuit Judge Joanna Tabit took Davis' place for the case. Chief Justice Margaret Workman and Tabit dissented and filed a separate opinion.


Chief Justice Margaret Workman

The petitioners are former shareholders with Massey Energy Company who appealed a November 2014 amended final order from Kanawha Circuit Court denying their motion to file a second amended complaint and dismissing the pending amended complaint.

Kanawha Circuit Court concluded that under controlling Delaware law, the petitioners lack standing to pursue a derivative shareholder suit. The state court also found that it would be futile to allow the former shareholders to file their proposed second amended complaint.

The Supreme Court found no error in the circuit court's rulings and affirmed its decisions.

Twenty-nine men were killed in an explosion at Upper Big Branch Mine in Montcoal on April 5, 2010. Ten days later, this lawsuit was filed by Manville Personal Injury Settlement Trust, a Massey shareholder. Other shareholders joined in and an amended complaint was filed on June 7, 2010.

The shareholders sought to hold individual members of Massey's board of directors, as well as certain corporate officers, personally liable to the company based upon alleged breach of fiduciary duties.

When Massey designed to merge with Alpha Natural Resources Inc., the shareholders then filed a motion with Kanawha Circuit Court for leave to file a second amended complaint because they wanted to add individual and class-action claims on behalf of the shareholders themselves on May 2, 2011.

The merger became effective on June 1, 2011, and Alpha replaced Massey's entire board of directors with a single director of its choosing. When the merger became effective, the stockholders ceased being Massey shareholders.

The circuit court dismissed the amended complaint and denied the motion for leave to file a second amended complaint on Nov. 14, 2013.

The former shareholders then appealed to the state Supreme Court, and the Supreme Court entered an order remanding the case back to circuit court for entry of an order containing findings of fact and conclusions of law on Aug. 26, 2014.

The state court then filed an amended final order explaining its reasons for dismissing the amended complaint and denying the motion for leave to file a second amended complaint on Nov. 20, 2014.

In the amended final order, the court explains that the former shareholders were no longer shareholders and had lost their standing under the applicable Delaware law to pursue a shareholder derivative suit.

The former shareholders then appealed the ruling, again, to the West Virginia Supreme Court.

The Supreme Court found that the circuit court did not abuse its discretion in denying the petitioners' motion for leave to amend their complaint with regard to the derivative claims.

The court also found that the former shareholders failed to allege an "extreme set of facts" to establish that the respondents' conduct was not disinterested or that the merger was "so far beyond the bounds of reasonable judgment that it seems inexplicable on any grounds other than bad faith," according to the majority opinion.

In her dissenting opinion, Workman said the majority's rejection of the petitioners' entirely reasonable attempt to amend their complaint to comport with newly discovered facts "smacks of blatant result-orientation."

Workman was joined in her opinion by Tabit.

Workman wrote that the petitioners have endured eight years of litigation, several investigations, prosecutions and procedural roadblocks; and that their attempts should not be rejected after all this time.

The petitioners did not endure all of these hurdles just to have the majority of the West Virginia Supreme Court sit as a "trier of fact" and adjudicate their claims on an undeveloped record, Workman wrote.

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