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WV Supreme Court hears Massey shareholders case

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Do former Massey Energy Company shareholders have the right to bring a derivative action to enforce an earlier settlement, or did they lose their rights to do so following the company's merger?

This is one of the questions attorneys presented Sept. 4 to the state Supreme Court in the case of Manville Personal Injury Settlement Trust, Longview Collective Investment Funds and California State Teachers' Retirement System v. Don Blankenship, Baxter Phillips Jr,. Gordon Gee, Richard M. Gabrys, James B. Crawford, Bobby R. Inman, Robert H. Foglesong, Stanley C. Suboleski, J. Christopher Adkins, M. Shane Harvey, Mark A Clemens, Elizabeth S. Chamberlin, Richard R. Grinnan and Massey Energy Company, now known as Alpha Appalachia Holdings Inc.

Chief Justice Brent Benjamin recused himself from the case. Senior Status Justice Thomas McHugh sat in his place.

Manville filed the lawsuit in Kanawha County Circuit Court derivatively on behalf of Massey Energy Company, asserting its board members turned a blind eye to safety and to federal and state regulations, which hurt the company's financial standing.

A Kanawha County Circuit Court judge granted the defendants' motions to dismiss Manville's petition for civil contempt and also vacated a 2008 order.

According to court documents, in May 2008 both sides executed a stipulation of settlement, providing a release of claims that could have been asserted derivatively on behalf of Massey.

The stipulation provided Massey would implement agreed corporate governance changes under a corporate governance agreement. This stipulation was approved by the court in June 2008.

Manville later filed a petition alleging certain Massey officers were violating the 2008 order because they said the corporate social responsibility report did not contain a worker safety compliance.

The circuit court ruled Manville did not have standing to enforce the settlement other than derivatively on behalf of Massey and whether it can file it derivatively would be governed by Delaware law.

Before the state Supreme Court, Manville asserts Massey Energy officers and directors did not comply with the lower court's order, which they say mandated the monitoring of violations and safety issues.

Manville argued the court also should have applied state law pursuant to a choice-of-law provision and should not have found that an exception warranted application of Delaware law.

In their court brief, Massey officers assert Manville did not bring forth any new issues.

"Although petitioners spend almost one-third of their brief … on the tragic explosion at Massey subsidiary Performance Coal Company's Upper Big Branch mine … and respondents' purported noncompliance with the 2008 order, these are not the issues before the court in the instant proceeding," the brief states.

The brief asserts Manville's arguments should be rejected because when Alpha and Massey merged, Manville no longer owned Massey shares and thus lacked standing to seek contempt.

Ronald Rolfe, who represented the former directors, said Manville lost standing when the companies merged because they were no longer shareholders of Massey.

"That's Delaware law," Rolfe said.

Rolfe said this case has nothing to do with miner safety, calling the issue a "red herring." Rolfe noted the investigation by the U.S. Attorney's office and wrongful death suits that have been filed and settled.

Rolfe also argued the former officers cannot comply even if they were found in violation because they resigned when the companies merged. He said Manville would have to prove the merger was pre-textual, which has not been alleged. 

Badge Humphries, who represented Manville, said the safety argument is important and argued it would be unlikely the directors would be held accountable for the obligation they owed to shareholders.