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Shareholder sues Massey, cites Montcoal and safety issues

CHARLESTON, W.Va. -- A company that owns 1,000 shares of Massey Energy Co. stock has sued Massey and its board of directors, alleging that last week's explosion at the Upper Big Branch Mine in Montcoal shows the company is neglecting safety measures.

In the lawsuit, filed Thursday in Kanawha Circuit Court, Manville Personal Injury Settlement Trust says board members turned a blind eye to safety and to federal and state regulations, which has hurt the company's financial standing.

"In allowing Upper Big Branch to continue operations despite the glaring red flags of unsafe and unlawful mine conditions . . .  (and given the countless, obvious red flags showing [Massey CEO Don] Blankenship's and company management's willingness to systematically violate mine safety laws in the name of continued production), [board members] consciously breached fiduciary duties owed to the company and its shareholders," the lawsuit states.

The shareholder derivative lawsuit names Massey, Blankenship, all current board members, former member E. Gordon Gee, the company's chief operating officer, chief compliance officer, general counsel and its senior vice president of group operations.

Shareholder derivative lawsuits generally allege that mismanagement of a company is decreasing the company's value, which hurts shareholders.

Massey general counsel Shane Harvey did not respond to a request for comment late Thursday.

The lawsuit summarizes many of the reports of numerous citations by inspectors with the U.S. Mine Safety and Health Administration in the wake of the massive underground explosion that killed 29 miners and injured two others on April 5.

"As a result of this disaster, mine infrastructure was destroyed, production came to a halt, and [MSHA officials] seized the mine," the lawsuit states.

The financial research and analysis firm Standard & Poor's concluded that lost production at the mine could cost Massey more than $50 million, according to the lawsuit.

"In addition, the company is almost certain to face securities fraud lawsuits, state and federal investigations, fines, heightened regulatory scrutiny, loss of goodwill, and reputational harm," the lawsuit maintains.

The company's officers and board members negligently failed to recognize that numerous citations at the Upper Big Branch Mine, including a noticeable spike in 2009 and 2010, indicated unsafe conditions at the mine, the lawsuit maintains.

According to the lawsuit, four of the eight citations overlooked by MSHA because of a purported computer glitch involved problems with the mine's ventilation.

The Manville trust filed a similar lawsuit against Massey, Blankenship and other board members in 2007, citing repeated violations of water pollution permit limits, large fines for the deaths of two miners in the Aracoma Mine fire in 2006, and a nearly $2 million verdict against Massey for firing a worker who complained about safety problems.

As part of a settlement in June 2008, the defendants in the earlier lawsuit agreed to pay $2.7 million in fees and expenses to the trust's lawyers. Massey management also agreed to increased oversight of safety and environmental compliance, and a company-wide safety compliance officer.

The settlement also required Massey to produce an annual report to keep shareholders up-to-date on environmental and worker safety compliance.

The new lawsuit alleges that the most recent report contains no information about the company's worker safety compliance. It quotes a brief passage from the 2009 report, which notes that Massey has spent millions of dollars to comply with the new requirements enacted by Congress in 2006.

"In addition, we continue to spend Massey's resources to develop innovative safety technology and programs that exceed regulatory requirements," the report reads.

The board's nine members, particularly seven who also are members of the company's Safety, Environmental and Public Policy Committee, must have known about the frequency and extent of safety violations at Massey mines, the lawsuit alleges. That committee was supposed to make quarterly reports to the board of directors, according to the lawsuit.

"[The safety violations] were so pervasive that they could not have been the result of an isolated failure of oversight," the lawsuit states. "Indeed, the wrongdoing in question is strongly suggestive of a corporate culture that regularly and consciously ignores sustained and systematic red flags that the company's mining operations are in violation of state and federal mine safety laws and therefore unreasonably unsafe."

Reach Andrew Clevenger at aclevenger@wvgazette.com or 304-348-1723.


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