Courts in West Virginia and Delaware will consider preliminary injunctions Tuesday against Wednesday's expected merger of coal mine giants Massey Energy and Alpha Natural Resources.
Massey owns the Upper Big Branch mine in West Virginia where 29 mine workers died in a massive explosion last year. The disaster figures heavily into the attempts to block the merger by large institutional investors.
"The mine explosion last year was not some bolt of lightning hitting a corporate factory where there's really nobody to blame," says Mark Lebovitch, an attorney representing the New Jersey Building Laborers Pension Fund and other institutional Massey shareholders with a lawsuit pending in Delaware.
"What you had with Massey was a board and a senior management team that over the course of years put profits above safety," Lebovitch contends. "[They] really showed contempt for anyone on the outside warning them, saying 'You are running this business in a way that is dangerous and you are going to harm people, kill people and, frankly, destroy corporate value.'"
Massey's stock price plummeted after the April 2010 explosion, generating strong interest in a takeover from several rivals. The company owns vast deposits of metallurgical coal used for making steel. Met coal, as it's called, is in great demand and is fetching high prices.
Some shareholders had so-called "derivative" lawsuits pending against Massey long before the Upper Big Branch explosion. They cited lax safety oversight and won a court-ordered settlement requiring specific "corporate governance enhancements" designed to improve safety and restore the company's value.
But the Upper Big Branch explosion prompted those shareholders to seek a contempt of court citation against the company. Their case is in West Virginia courts.
In both cases, the shareholders say the Massey board and company executives agreed to a takeover by Alpha Natural Resources to shield them from liability in the lawsuits. Massey and its board would cease to exist after a merger and the lawsuits would presumably become moot.
Alpha could continue the lawsuits but it benefited from the diminished value created by Massey's poor safety record and the Upper Big Branch explosion. Alpha has also announced that it will fold into its new management team several Massey executives, including Chief Operating Officer Chris Adkins.
Adkins will assist in the integration of Alpha's safety program, called Running Right, across the merged companies.
That makes it unlikely that Alpha will continue the shareholder claims after the merger, says Badge Humphries, an attorney representing the California State Teachers Retirement System and other institutional shareholders in the West Virginia lawsuit.
Humphries says he finds it difficult to believe that Alpha will make "a claim against their new co-head of safety asserting that he's responsible for the Upper Big Branch disaster. It's just not going to happen," he says.
Also moving to Alpha if the merger is approved is Shane Harvey, Massey's general counsel. Harvey, Humphries says, was responsible for making sure Massey met the terms of the safety settlement.
The suing shareholders want preliminary injunctions to block a planned merger vote among all Massey and Alpha shareholders Wednesday morning.
"Trying to undo a merger after it is closed is a difficult task," Humphries adds. "The courts have compared it to unscrambling an egg."
The West Virginia Supreme Court of Appeals will also consider Tuesday a request from NPR and the Charleston Gazette to unseal documents in the case in that state, which include depositions from Massey and Alpha executives.
Humphries suggests the sealed documents show that Massey agreed to the sale so that its board of directors and executives would be free of liability in the lawsuits. He declined to provide details given a confidentiality agreement that made the depositions possible.
The sealed depositions include statements from Massey executives who declined to testify in the joint state and federal investigations into the cause of the Upper Big Branch explosion.
"Certainly the public [and] shareholders have a right to know what impact the Upper Big Branch tragedy has on this proposed merger," says attorney Sean McGinley, who represents NPR and the Charleston Gazette in the case.
Davitt McAteer led an independent investigation of the Upper Big Branch explosion and noted in the group's final report two weeks ago that the failure of the Massey executives to testify keeps the probe from being complete.
"The fact that they failed to provide testimony made it more difficult for us to understand the thinking that was going on prior to and during the course of the disaster," McAteer says. "The opening of the sealed transcripts and sealed depositions will be helpful to us to try to understand...the actions of [Massey] management."
Massey Energy did not respond to an NPR request for comment for this story but has said it operated its mines safely. The company also blames the Upper Big Branch explosion on a natural, unpredictable and unpreventable infusion of explosive natural or methane gas. McAteer contests that in his report.
Massey asked the West Virginia Supreme Court to keep documents sealed at least until 5 p.m. EST Tuesday. That would leave little time for review by Massey and Alpha shareholders before they're scheduled to vote on the merger at 9:30 am EST Wednesday morning.
A spokesman for Alpha Natural Resources says the company will not comment "while the litigation is playing out." But Alpha has said in court documents that it believes Massey shareholders are getting a good price in the takeover. The company also insists its board will consider continuing the shareholders lawsuits.
In a hearing in the Delaware case last week, Judge Leo Strine referred to Massey stockholders as "the least sympathetic characters" in the case.
"Any investor who invested in Massey...knew the managerial culture it was buying into," Strine said. "And knew that you had people who believed that their way of doing it was better than the people charged with enforcing the law."
Strine unsealed some documents in the case last week. He may issue a ruling Tuesday. West Virginia's Supreme Court considers Tuesday the shareholders' request for an injunction and the request by NPR and the Charleston Gazette to unseal court records.