Cal. State Teachers' Ret. Sys. v. Blankenship
| Decision Date | 25 May 2018 |
| Docket Number | No. 14-1339,14-1339 |
| Citation | 814 S.E.2d 549 |
| Court | West Virginia Supreme Court |
| Parties | CALIFORNIA STATE TEACHERS' RETIREMENT SYSTEM, Amalgamated Bank as Trustee for the Longview Collective Investment Funds, Manville Personal Injury Settlement Trust, Derivatively on Behalf of Massey Energy Company, Philip R. Arlia, and Brian Lynch, Plaintiffs Below, Petitioners, v. Don L. BLANKENSHIP; Baxter F. Phillips, Jr.; Dan R. Moore; E. Gordon Gee; Richard M. Gabrys; James B. Crawford; Bobby R. Inman; Robert H. Foglesong; Stanley C. Suboleski; J. Christopher Adkins; Jeffrey M. Jarosinski; M. Shane Harvey; and Mark A. Clemens, Defendants Below, Respondents, and Massey Energy Company, a Delaware Corporation, Nominal Defendant Below, Respondent. |
Badge Humphries, Esq., Lewis Babcock L.L.P., Sullivan’s Island, South Carolina and Anne McGinness Kearse, Esq., Motley Rice LLC, Mount Pleasant, South Carolina, Lead Counsel for Petitioners
Carl N. Frankovitch, Esq., Frankovitch, Anetkis, Simon, Decapio & Pearl LLP, Weirton, West Virginia, Counsel for Petitioner Arlia and Executive Committee Member
Kevin A. Seely, Esq., pro hac vice, Robbins Arroyo, LLP, San Diego, California, Executive Committee Member
Jay N. Razzouk, Esq., pro hac vice, Jay N. Razzouk, Attorney at Law, San Bernardino, California, Executive Committee Member
Alfred G. Yates, Jr., Esq., Law Offices of Alfred G. Yates, Jr., P.C., Pittsburgh, Pennsylvania, Counsel for Petitioner Arlia and Executive Committee Member
A. L. Emch, Esq., Jonathan L. Anderson, Esq., Albert F. Sebok, Esq., Jackson Kelly PLLC, Charleston, West Virginia, Counsel for Respondents Moore, Gee, Gabrys, Crawford, Inman, Foglesong, and Suboleski
Thomas V. Flaherty, Esq., Flaherty Sensabaugh Bonasso PLLC, Charleston, West Virginia, Counsel for Respondents Blankenship, Phillips, Adkins, Jarosinski, Harvey, and Clemens
Jeffrey K. Phillips, Esq., Steptoe & Johnson PLLC, Lexington, Kentucky and Mitchell A. Lowenthal, Esq., pro hac vice, Boaz S. Morag, Esq., pro hac vice, Cleary Gottlieb Steen & Hamilton LLP, New York, New York, Counsel for Respondent Massey Energy Company n/k/a Alpha Appalachia Holdings, Inc.
The petitioners, who were several shareholders of the former company/nominal respondent Massey Energy Company ("Massey" or "the company"), appeal the November 20, 2014, Amended Final Order of the Circuit Court of Kanawha County denying their motion for leave to file a Second Amended Complaint and dismissing their pending Amended Complaint. The petitioners argue that if permitted to once again amend their complaint, they would assert facts sufficient to establish their standing to pursue a derivative shareholder action on behalf of Massey against former corporate directors and officers, even though the petitioners are no longer Massey shareholders. With their proposed Second Amended Complaint, the petitioners also seek to add new claims on behalf of themselves and a putative class alleging that the respondents breached fiduciary duties owed directly to Massey shareholders when negotiating and agreeing to a corporate merger.
The circuit court concluded that under controlling Delaware law, the petitioners lack standing to pursue a derivative shareholder suit. Furthermore, the circuit court found that it would be futile to allow the petitioners to file their proposed Second Amended Complaint. For the reasons set forth below, we find no error in the circuit court’s rulings and, accordingly, we affirm.
On April 5, 2010, a devastating explosion occurred at Performance Coal’s Upper Big Branch ("UBB") underground coal mine in Montcoal, West Virginia. Tragically, twenty-nine men working at UBB were killed. Performance Coal was a subsidiary of Massey, a Delaware corporation headquartered in Virginia. In the wake of the explosion, allegations arose of systemic mine safety compliance failures. See Manville Pers. Injury Settlement Tr. v. Blankenship ("Manville "), 231 W.Va. 637, 640, 749 S.E.2d 329, 332 (2013). Several investigations1 and lawsuits ensued.
The instant litigation began as a derivative shareholder lawsuit filed in the Circuit Court of Kanawha County on April 15, 2010, by Manville Personal Injury Settlement Trust, a Massey shareholder. Subsequently, the lawsuit was consolidated with derivative actions instituted by other Massey shareholders, including California State Teachers' Retirement System and Amalgamated Bank as Trustee for the Longview Collection Investment Funds, and an Amended Complaint was filed on June 7, 2010.2 (All of the shareholder plaintiffs are collectively referred to herein as "the petitioners"). In their derivative shareholder claims, the petitioners seek to hold individual members of Massey’s then-Board of Directors, as well as certain Massey corporate officers, personally liable to the company based upon the alleged breach of fiduciary duties. At its core, the Amended Complaint asserts that the directors and officers knowingly allowed Massey’s employees to disregard worker safety laws, regulations, and procedures, which resulted in the UBB explosion. The individual defendants named in the Amended Complaint are Donald L. Blankenship, Baxter F. Phillips, Jr., Dan R. Moore, E. Gordon Gee, Richard M. Gabrys, James B. Crawford, Bobby R. Inman, Robert H. Foglesong, Stanley C. Suboleski, J. Christopher Adkins, Jeffrey M. Jarosinski, M. Shane Harvey, and Mark A. Clemens (hereinafter collectively "the respondents").
In addition, other Massey shareholders filed similar derivative lawsuits against Massey directors and officers in the Delaware Court of Chancery. See In re Massey Energy Co. Derivative and Class Action Litig. , 160 A.3d 484 (Del. Ch. 2017) (" Massey Energy II " ).3 The Delaware cases were subsequently consolidated with one another and amended to include direct claims on behalf of the shareholders themselves. Id.4
Weeks after the explosion, another company in the coal industry, Alpha Natural Resources, Inc. ("Alpha"), initiated discussions with Massey about a possible corporate merger.5 Initially, Massey’s Board of Directors ("Massey Board") dismissed the idea. However, Alpha approached Massey again in August 2010 with a non-binding proposal offering twenty percent over Massey’s then-current stock price of $30.99 per share. The Massey Board rejected this offer as insufficient, but determined that exploration of a merger was warranted. In September 2010, Alpha increased its offer to $41.07 for each share of Massey stock. After an October 2010 article in the Wall Street Journal reported that Massey was reviewing alternatives, Massey received proposals from two additional companies, Arcelor Mittal S.A. and Arch Coal, Inc.6 Massey’s discussions with Alpha were ongoing during this time. In early January 2011, Arch Coal submitted a non-binding offer of $70 per share; the following day, Alpha submitted an offer of $60.51 per share. Later in January, Alpha raised its bid to $65 per share, while Arch Coal lowered its bid to $55 per share. Following further negotiations, Alpha and the Massey Board reached a Merger Agreement on January 28, 2011, whereby Alpha would pay $69.33 per share of Massey stock.
The Merger Agreement between Massey and Alpha was announced on January 29, 2011. The Agreement provided that if Massey’s stockholders approved, then on June 1, 2011, Massey would merge with and into a company named Mountain Merger Sub, Inc. that was formed by Alpha solely to effectuate this merger. The surviving corporation would be a wholly-owned subsidiary of Alpha named Alpha Appalachia Holdings, Inc., a Delaware corporation. As part of the Merger Agreement, each outstanding share of Massey common stock would be converted into the right to receive 1.025 shares of Alpha common stock plus $10 in cash (which calculates to $69.33 per share). As proposed, total consideration for the merger would be in excess of $7 billion dollars.
Faced with the potential merger, on May 2, 2011, the petitioners filed a motion with the Circuit Court of Kanawha County for leave to file a Second Amended Complaint that, in addition to re-asserting derivative claims on behalf of the company, sought to add individual and class action claims on behalf of the shareholders themselves.7 The petitioners' individual and class action claims assert that the respondents violated fiduciary duties owed to the shareholders when negotiating and approving the Merger Agreement at an inadequate price. In their brief, the petitioners report that the parties conducted discovery pertaining to both the safety and the merger issues, but the petitioners desire additional discovery.
On May 16, 2011, the petitioners filed a motion in the circuit court to preliminarily enjoin Massey’s merger with Alpha. Unable to obtain a circuit court hearing in the time frame they requested, the petitioners filed an emergency petition with this Court on May 25, 2011, also seeking a preliminary injunction to halt the merger. After recognizing that the motion had not yet been acted upon by the circuit court, that Alpha would be impacted by an injunction but was not named as a party, and that a motion to enjoin the merger was already pending in the Delaware litigation, this Court denied the emergency petition. See California State Teachers' Ret. Sys. v. Blankenship , No. 11-0839, 2011 WL 2119761 (memorandum order).
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