Shareholders of Massey Energy Co. asked a judge on Thursday to block the company's pending acquisition unless they are allowed to pursue claims that company directors ignored safety for profits and should be held accountable for a mine explosion that killed 29 workers last year.
The shareholders claim that if the $7 billion deal is allowed to close, their derivative claims will be lost, and the Massey directors will be allowed to escape responsibility for leaving the company so damaged that they were forced to sell it to Abingdon, Va.-based with by Alpha Natural Resources at a discount in an effort to shield themselves from liability.
"Alpha in no way is going to pursue these claims," shareholders' attorney Stuart Grant told Delaware court Vice Chancellor Leo Strine Jr. in arguing for a preliminary injunction to delay the merger.
But attorneys for Massey and Alpha urged Strine to allow stockholders to vote on merger on June 1 and said Alpha can decide later whether it would be in its best interests to pursue claims against the Massey directors.
"The Alpha board is precisely capable of making those decisions," said attorney Mitchell Lowenthal.
Kevin Abrams, an attorney for Massey and its directors, defended the proposed merger and rejected the plaintiffs' arguments that the company failed to get the best deal it could.
"We've got a very substantial premium and a great deal for stockholders," he said.
The arguments came in a Wilmington court because though Massey is based in Richmond, Va., it is incorporated in Delaware. Many corporations attracted by the state's business-friendly laws incorporate there.
Grant argued that in negotiating the deal, Massey directors failed to put a value on the derivative claims by shareholders or on the lost profits from the closing of the Upper Big Branch mine.
Grant said the merger presents Massey shareholders in an untenable position of rejecting the Alpha merger, leaving current Massey management in place, or approving the deal and allowing the Massey directors, who Grant said have a combined net worth of at least $400 million, to walk away scot-free.
Strine seemed to acknowledge the difficult choice outlined by Grant.
"Enjoining this perpetuates these folks in this management," he noted.
The judge heard more than three hours of arguments Thursday but did not immediately rule on the shareholders' request for an injunction, or at least an order declaring that their derivative claims would not disappear if the deal closes.
Strine acknowledged, however, that the case presented a challenging set of legal and factual issues.
"It's a very interesting situation," he said.
"One wishes it was less interesting for the people who were most directly affected," the judge added, referring to the families of the 29 miners.
Last week, an independent investigator issued a scathing report on the April 2010 explosion at the Upper Big Branch mine near Montcoal, W.Va. According to the report, Massey Energy leaders fostered a business environment in which coal production was valued more highly than workers' safety.
In West Virginia, the California State Teachers' Retirement System and two other institutional investors have asked the Supreme Court for an injunction preventing Wednesday's merger vote. They also argue the deadly explosion and other actions have damaged Massey's value.
The shareholders in Delaware's court claim former CEO and chairman Don Blankenship, retired Adm. Bobby Inman and other Massey directors breached their fiduciary duties by allowing the company to operate in an unsafe manner.
Grant told Strine that Delaware, corporate headquarters to many Fortune 500 companies, needs to send a message that it will not tolerate corporate boards that "sit by and put people in mortal danger," and that Blankenship should not be given a "get out of jail free card."
Strine appeared to take offense at Grant's remark, suggesting that Delaware courts already have made clear that corporate directors who break the law are not immune from liability.
"If we get on a moral high horse, we'll fall off," the judge said, adding that stockholders are the "least sympathetic" victims of what has occurred at Massey.