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Latest version of Caperton-Massey trial continues in Virginia

By By Paul Nyden
Staff writer

GRUNDY, Va. — Jurors in a Virginia court this week heard some of the same testimony as jurors in Boone County, West Virginia, a dozen years ago, as former mine company owner Hugh Caperton continues his efforts to win damages and other compensation from Massey Energy for allegedly forcing his company out of business.

Caperton alleges Massey bought Wellmore Coal Corp. in 1997 with the specific intention of shutting down Harman Mining’s operations, owned by Caperton, just outside Grundy and selling its own metallurgical coal to steel companies.

Caperton originally filed his suit in Boone County because the company Massey used to take over Harman’s coal contracts with LTV Corp. was based there. Massey bought Wellmore, a subsidiary of United Coal, on July 31, 1997.

Caperton won a $50 million verdict against Massey from a Boone County jury in 2002.

But the West Virginia Supreme Court overturned that verdict three times, ultimately saying the case should be sent back to Virginia, where Caperton operated his coal mines.

Harman Mining had its underground mines along a scenic road between U.S. 460 and the Breaks Interstate Park, on the Virginia-Kentucky border.

Buchanan County Judge Henry Vanover is conducting the latest trial before an 11-member jury.

During his testimony in Grundy this week, Caperton told the jury he will turn 59 later this month, but was only 42 when the dispute with Massey began.

Caperton testified he has been involved with the coal industry his whole life, growing up in Slab Fork, a Raleigh County coal town where his relatives owned coal operations. Caperton also testified he briefly worked for A.T. Massey himself early in his career.

Harman Mining sold its metallurgical coal through Wellmore to the LTV Corp., a company that operated several steel mills, including one in Pittsburgh.

Caperton’s suit focuses on Massey’s acquisition of Wellmore on July 31, 1997. After that sale, Massey President and Chief Executive Officer Don Blankenship shifted Harman’s contracts with LTV to Massey’s mines in Boone County.

Harman Mining hired union miners at its Virginia operations, while Massey has long operate almost all its operations with nonunion workers.

If Caperton ultimately wins his lawsuit seeking damages from Massey, Harman’s union miners who lost their jobs would also receive compensation for some of their losses after Harman was forced to close down.

“We were a big component of the Wellmore [coal] blend,” Caperton testified in Grundy.

But a week after Massey bought Wellmore on July 31, 1997, Caperton said, he received a letter from Wellmore President Stan Suboleski, saying Wellmore would buy only 573,000 tons of coal from Harman — about 150,000 tons less than the previous year

Caperton called the letter “alarming. The letter was completely opposite of what they told us a week before ….”

“In the middle of October, an employee of mine at Harman said he heard we lost our contract with LTV. … No one ever discussed with me that they would take coal other than that [mined] under our contract.”

In November, after Caperton told Blankenship he might challenge his actions, “Blankenship said, ‘We’ve spent $1 million on attorneys and we will tie you up in court for years,’” Caperton testified this week.

“I did not want to sell Harman, where we had 150 miners,” Caperton testified. “I worked there for five years and had a lot of obligations. The last thing in the world I wanted to do was sell a company that I was building.”

By December, Caperton said, he “offered to sell Harman to Massey for $17 million.”

“I thought the number should be higher. But I was just trying to keep us from filing bankruptcy,” Caperton said. Nothing happened, he said.

“Layoffs were coming at Christmas time,” Caperton testified. “I didn’t see a way I could continue to operate … I made a decision that Harman could not go further in its mining operations, as of January 17 or 18.”

Harman’s mining operations mines closed officially on March 12, 1998.

“This has been a very difficult time, difficult for my family, financially and personally. The case has gone on now for 14 years. And still to this day, I worry about all my employees at Harman,” Caperton testified.

Kevin B. Huff, a Washington, D.C., lawyer who previously represented Massey, represented Alpha Natural Resources in questioning Caperton during the trial in Grundy.

Alpha, then the country’s third-largest coal producer, agreed to buy a majority interest in Massey Energy on Jan. 28, 2011, for $7.1 billion in cash and stock. Alpha spokesman Steve Higginbottom said the company wouldn’t comment during the ongoing litigation.

When Caperton was on the witness stand, Huff displayed statistics and graphics showing Harman Mining paid Caperton salary and benefits ranging from $140,000 in 1997 to $191,000 in 1993. Between 1993 and 1997, Caperton was paid a total of $877,692 in salary and benefits.

In 1998, Blankenship, then CEO of A.T. Massey Coal Co., made more than $4.2 million in salary, stock options and other benefits, according to company filings with the federal Securities and Exchange Commission. During the next decade, Blankenship’s annual salary, bonuses and other benefits often exceeded $10 million, according to SEC filings.

Huff asked Caperton if he knew that “Massey was negotiating with Pittston over these reserves at the same time it was negotiating with you to buy Harman.”

Caperton said he did not become aware of those negotiations until mid-February 1998.

Massey ended up leasing a narrow strip of coal around Harman’s operations that would have prevented the company from expanding into Pittston-controlled coal reserves.

The Grundy trial will be in recess until Friday, while Judge Vanover attends a Virginia judicial conference.

Bruce Stanley, from Reed Smith, a Pittsburgh-based law firm that represents Caperton, said after the trial resumes, it could last another two weeks before the case goes before the jury.

The Boone County jury awarded $50 million in damages to Caperton and his creditors back in 2002. When the West Virginia Supreme Court first ruled on Massey’s appeal of the Boone County verdict on Nov. 21, 2007, the damages would have been more than $76 million, with interest.

That ruling was 3-2 against Caperton, but the Supreme Court decided to reconsider a few months later, after photographs emerged showing Blankenship on vacation with the late Justice Elliott “Spike” Maynard while Caperton’s appeal was pending.

In April 2008, after Maynard recused himself, the Supreme Court ruled against Caperton a second time, also by a 3-2 vote. Justice Larry Starcher also recused himself from that decision, after making negative comments about Blankenship. But Justice Brent Benjamin, elected in 2004 with the help of more than $3 million spent by Blankenship during the campaign, refused to step down.

In June 2009, the U.S. Supreme Court ruled Benjamin had a major conflict of interest and should have recused himself from the case.

The West Virginia Supreme Court then made a third decision against Caperton, by a 4-1 vote, on Nov. 12, 2009.

The court dismissed the argument Caperton’s lawyers made that the case should be tried in West Virginia because the damages forcing Harman Mining to close came from Blankenship’s decisions to move Harman’s coal contract to Wellmore, a company based in Boone County.

Caperton then refiled the case seeking damages against Massey and Blankenship in Grundy.

Stanley said he does not believe Blankenship will testify during the remaining proceedings.

Reach Paul J. Nyden at pjnyden@wvgazette.com or 304-348-5164.


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