Massey Energy Co. investors failed Tuesday to persuade courts in West Virginia and Delaware to halt a shareholder vote on the company's proposed $7.1 billion sale to rival coal producer Alpha Natural Resources.
The West Virginia Supreme Court ruled in an appeal by certain Massey shareholders that it did not have jurisdiction to issue an injunction blocking Wednesday's vote. It deferred to the Delaware Court of Chancery, where a judge heard arguments last week over a request for an injunction brought by a different group of Massey investors.
Several hours later, Delaware Vice Chancellor Leo Strine Jr. issued a 79-page opinion in which he said he found no basis to prevent informed shareholders from voting on whether to accept Alpha's bid or keep Richmond, Va.-based Massey independent.
The rulings came one day before the deal is set to close, pending votes by shareholders of both companies. The deal would make Abingdon, Va.-based Alpha the third-largest producer of high-priced metallurgical coal in the world and the dominant U.S. producer of the specialty product used by steelmakers.
Massey shareholders argued in lawsuits filed in both West Virginia and Delaware that an explosion at Massey's Upper Big Branch mine in West Virginia that killed 29 miners last year was the result of company directors putting profits ahead of safety, and that it left the company so damaged that Alpha was able to buy it on the cheap. They also argued that if the merger was allowed to close, current and former Massey directors and officers would escape liability for breaching their fiduciary duties to the company.
But the West Virginia Supreme Court determined that it did not have jurisdiction to issue an injunction or to establish a litigation trust to protect the shareholders' derivative claims on behalf of the company because the case had not yet been heard by a lower court in West Virginia.
"The Delaware Court has the benefit of considerable discovery, has been able to review the briefs and has heard extensive argument," the West Virginia justices also noted.
Massey had no immediate comment on the West Virginia ruling, while a spokesman for Alpha, which was not party to the West Virginia case, declined to comment. Lawyers for the plaintiffs did not immediately respond to requests for comment.
Meanwhile, Strine, the Delaware judge, concluded that there was not enough evidence to suggest that the Alpha merger was undervalued, or that Massey directors agreed to the buyout solely to protect themselves from liability for the derivative claims.
"We do not live in a perfect world and the ability of human institutions to do full justice will always fall short of the ideal," Strine wrote. "That Massey might be selling to Alpha at a price lower than it would have had the company been better managed is an idea one can embrace without also then concluding that there is a basis to conclude that the merger with Alpha ought to be enjoined."
Stuart Grant, an attorney representing plaintiffs in the Delaware case, said Strine's decision was in stark contrast to the record presented in court.
"This decision is not only bad for shareholders, it is detrimental to Delaware," Grant said. "The message sent is that if you violate the law as a director, the simple way out is to sell the company. It is decisions like this that will cause Delaware to have a shareholder-unfriendly reputation and drive litigation to other states where shareholders believe they can get a fair shake."
In both lawsuits, defendants sought to keep certain information out of the public eye, but unredacted versions of briefs were filed in the Delaware case last week after The Associated Press objected to the censoring of material in previous submissions.
On Tuesday, the West Virginia Supreme Court unsealed documents filed in the appeal it heard, but not in filings in Kanawha County Circuit Court. Circuit Judge Charles King said he has scheduled a hearing to consider unsealing the lower court documents for Wednesday.
Those filings portray the sale as a secret scheme by Massey to control the internal investigation of the explosion to protect company executives, and an attempt to allow Massey directors to escape liability for the shareholder claims.
The documents claim Massey Chairman Bobby Inman struck an undisclosed deal with Alpha Chief Executive Kevin Crutchfield to retain Massey Chief Operating Officer Chris Adkins and General Counsel Shane Harvey in high-ranking positions.
Adkins and Harvey are described as key figures in Massey's internal investigation, but the plaintiffs call them "the ones most culpable for the Upper Big Branch explosion."
The plaintiffs claim the deal also covered Chris Blanchard and Jason Whitehead, the top officials at Massey's Performance Coal, the subsidiary that operates Upper Big Branch.
"Shareholders (and the public) are currently unaware of this fact or the fact that these two operators' hiring was part of a broader secret pact between Inman and Crutchfield through which Alpha would hire the Massey Energy executives most culpable for participating in (or covering up) illegal conduct implicated in the UBB disaster," the plaintiffs wrote.
Massey lawyers describe the plaintiffs' claims as nonsensical in court filings.
The disaster was the deadliest at a U.S. coal mine since 1970. An independent investigation commissioned by West Virginia's former governor concluded the blast was preventable and caused by Massey's failure to follow basic safety requirements.
Massey maintains the explosion was caused by an uncontrollable inundation of natural gas that overwhelmed all safety measures.
Reports are expected from federal and state regulators and the United Mine Workers labor union. Separately, a federal grand jury is conducting a criminal probe.