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WV Supreme Court: Massey shareholders lacked standing

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Photo courtesy of the West Virginia Supreme Court. Photo courtesy of the West Virginia Supreme Court.

Former Massey Energy Company shareholders cannot bring a derivative action to enforce an earlier settlement because they lost their rights to do so following the company's merger, the West Virginia Supreme Court decided.

Attorneys argued their case 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.

The Sept. 13 state Supreme Court ruling concluded Manville lacked standing to pursue contempt proceedings against Massey.

The opinion said Manville failed to allege the merger was fraudulent. When the companies merged, the opinion states, Manville no longer was a shareholder and under Delaware law, that meant it lost standing to pursue derivative claims on Massey's behalf.

In their court brief, Massey officers asserted 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 asserted 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.