Manville Pers. Injury Settlement Trust v. Blankenship

• Decision Date: 12 September 2013
• Docket Number: No. 11–1488.,11–1488.
• Citation: 749 S.E.2d 329,231 W.Va. 637
• Parties: MANVILLE PERSONAL INJURY SETTLEMENT TRUST; Amalgamated Bank, As Trustee for the Longview Collective Investment Funds; And California State Teachers' Retirement System; Petitioners Below, Petitioners v. Don L. BLANKENSHIP; Baxter F. Phillips, Jr.; E. Gordon Gee; Richard M. Gabrys; James B. Crawford; Bobby R. Inman; Robert H. Foglesong; Stanley C. Suboleski; J. Christopher Adkins; M. Shane Harvey; Mark A. Clemens; Elizabeth S. Chamberlin; and Richard R. Grinnan, Contemners Below, Respondents and Massey Energy Company, n/k/a Alpha Appalachia Holdings, Inc., a Delaware corporation, Nominal Defendant Below.
• Court: West Virginia Supreme Court

231 W.Va. 637

749 S.E.2d 329

MANVILLE PERSONAL INJURY SETTLEMENT TRUST; Amalgamated Bank, As Trustee for the Longview Collective Investment Funds; And California State Teachers' Retirement System; Petitioners Below, Petitioners

v. Don L. BLANKENSHIP; Baxter F. Phillips, Jr.; E. Gordon Gee; Richard M. Gabrys; James B. Crawford; Bobby R. Inman; Robert H. Foglesong; Stanley C. Suboleski; J. Christopher Adkins; M. Shane Harvey; Mark A. Clemens; Elizabeth S. Chamberlin; and Richard R. Grinnan, Contemners Below, RespondentsandMassey Energy Company, n/k/a Alpha Appalachia Holdings, Inc., a Delaware corporation, Nominal Defendant Below.

No. 11–1488.

Supreme Court of Appeals of West Virginia.

Submitted Sept. 4, 2013.

Decided Sept. 12, 2013.

Syllabus by the Court

1. “ ‘Generally, findings of fact are reviewed for clear error and conclusions of law are reviewed de novo. However, ostensible findings of fact, which entail the application of law or constitute legal judgments which transcend ordinary factual determinations, must be reviewed de novo.’ Syl. Pt. 1, in part, State ex rel. Cooper v. Caperton, 196 W.Va. 208, 470 S.E.2d 162 (1996).” Syl. pt. 2, Messer v. Huntington Anesthesia Group, Inc., 222 W.Va. 410, 664 S.E.2d 751 (2008).

2. A fundamental principle of the law of corporations is that a shareholder derivative action is an equitable proceeding in which a shareholder asserts, on behalf of the corporation, a claim that belongs to the corporation rather than the shareholder.

3. “The local law of the state of incorporation should be applied to determine who can bring a shareholder derivative suit.” Syl. pt. 2, State ex rel. Elish v. Wilson, 189 W.Va. 739, 434 S.E.2d 411 (1993).

4. “ ‘In essence, the question of standing is whether the litigant is entitled to have the court decide the merits of the dispute or of particular issues.’ Warth v. Seldin, 422 U.S. 490, 498 [95 S.Ct. 2197, 45 L.Ed.2d 343] (1975).” Findley v. State Farm Mutual Automobile Insurance Company, 213 W.Va. 80, 576 S.E.2d 807 (2002).

A. Andrew MacQueen, Esq., Charleston, WV, Badge Humphries, Esq., Motley Rice, LLC, Mount Pleasant, SC, Victoria Antion Nelson, Esq., Motley Rice, LLC, Morgantown, WV, for Petitioners.

Brian Glasser, Esq., Ricklin Brown, Esq., Christopher S. Morris, Esq., Bailey & Glasser, LLP, Charleston, WV, Mitchell A. Lowenthal, Esq., Boaz S. Morag, Esq., Cleary Gottlieb Steen & Hamilton, LLP, New York, NY, for Massey Energy Company n/k/a Alpha Appalachia Holdings, Inc.

A.L. Emch, Esq., Jonathan L. Anderson, Esq., Jackson Kelly, PLLC, Charleston, WV, Ronald S. Rolfe, Esq., Stuart W. Gold, Esq., Julie A. North, Esq., Cravath, Swaine & Moore, LLP, New York, NY, for Respondents, E. Gordon Gee, Richard M. Gabrys, James B. Crawford, Bobby R. Inman, Robert H. Foglesong and Stanley C. Suboleski.

Thomas V. Flaherty, Esq., Tammy R. Harvey, Esq., Flaherty Sensabaugh Bonasso, PLLC, Charleston, WV, for Respondents, Don L. Blankenship, Baxter F. Phillips, Jr., J. Christopher Adkins, M. Shane, Harvey, Mark A. Clemens and Richard R. Grinnan.

KETCHUM, Justice:

This appeal is from the September 29, 2011, order of the Circuit Court of Kanawha County which dismissed petitions for civil contempt filed by petitioners Manville Personal Injury Settlement Trust (“Manville Trust”); Amalgamated Bank, as Trustee for the Longview Collective Investment Funds (“Amalgamated Bank”); and California State Teachers' Retirement System (“CalSTRS”). The contempt petitions were filed against the respondents who were former directors and officers of Massey Energy Company (“Massey”) prior to the purchase of Massey in 2011 by Alpha Natural Resources. After the purchase, Massey was renamed Alpha Appalachia Holdings and now is a subsidiary of Alpha Natural Resources.

The petitions for civil contempt alleged that the respondents, while officers and directors of Massey, failed to implement certain environmental and mine worker safety standards mandated in a June 30, 2008, order entered in the Circuit Court of Kanawha County. The environmental and safety standards set forth in the 2008 order were part of the settlement of a shareholder derivative action filed against the respondents by Manville Trust on behalf of Massey. Among the petitioners' allegations in the contempt proceeding was the failure of the respondents to implement the safety standards prior to the April 2010 explosion at Massey's Upper Big Branch Mine in which 29 coal miners were killed.

Distinguishing the extensive litigation in other courts surrounding the April 2010 disaster from this matter, the respondents contend that the contempt petitions filed against them solely addressed the relation of Massey shareholders, directors and officers inter se and that, as a result, the contempt petitions were peculiar to the internal structure of the corporation. The respondents assert that the petitioners lack standing to pursue contempt proceedings inasmuch as (1) the petitioners no longer own any Massey stock; (2) Massey has been purchased by Alpha Natural Resources; and (3) the respondents were removed by Alpha as corporate directors and officers. The circuit court agreed and granted the respondents' motion to dismiss pursuant to the September 29, 2011, order.¹

Upon review, this Court is of the opinion that the circuit court was correct in concluding that the petitioners lacked standing to pursue contempt proceedings against the respondents. Therefore, the September 29, 2011, order granting the respondents' motion to dismiss the petitions for civil contempt is affirmed.

I. Factual Background

Massey was a Delaware corporation with its headquarters in Virginia. Most of its shareholders, including Manville Trust, Amalgamated Bank and CalSTRS, were institutional investors. On July 2, 2007, Manville Trust filed a shareholder derivative action in the Circuit Court of Kanawha County alleging that the Massey board of directors, and various corporate officers, breached their fiduciary duties by failing to make sure that Massey employees were complying with certain environmental and mine worker safety laws and regulations. Manville Trust was the sole plaintiff, and the action was filed “derivatively on behalf of Massey Energy Company.” See W.Va. R. Civ. P. 23.1 (setting forth requirements for derivative actions by shareholders). ²

An amended complaint was filed in December 2007. In both complaints, Manville Trust included in the relief sought compensatory damages against “[t]he Individual Defendants and in favor of the Company for the amount of damages sustained by the Company as a result of the Individual Defendants' breaches of fiduciary duties.” (emphasis added) Manville Trust also sought costs and attorney fees.

On May 20, 2008, the parties executed a Stipulation of Settlement of the Manville Trust action which provided for a release of all claims that were or could have been asserted derivatively on behalf of Massey—through May 20, 2008. Excepted from the release was the right of the settling parties, i.e., Manville Trust, “derivatively on behalf of Massey,” and the defendants, to enforce the terms of the settlement. The settlement further provided that its terms were not to be deemed an admission as to the merits of any claim or defense.

The claims released pursuant to the Stipulation of Settlement were in exchange for certain reforms to be made a part of Massey's corporate governance policies relating to company oversight and conduct regarding environmental and mine worker safety standards. The reforms were incorporated into Massey's written Corporate Governance Agreement and were to remain in effect for 5 years, subject to removal if found to be in conflict “with any amendment to the Company's Certificate of Incorporation approved by the Company's shareholders.” ³ In the words of the petitioners, the fundamental purpose of the reforms “was to implement a reporting system to deliver environmental and safety compliance information up Massey's corporate structure, from the mines to the Board, and ultimately to the shareholders.”

In June 2008, the circuit court conducted a settlement hearing, at the conclusion of which the Judge stated: “I find that the settlement is fair, it's reasonable, it's adequate, and most importantly it's in the best interest of Massey.” Thereafter, on June 30, 2008, the circuit court entered an order approving the settlement and dismissing Manville Trust's claims, with prejudice. The order incorporated the Stipulation of Settlement and the Corporate Governance Agreement. The order also stated that “[a]ll shareholders of Massey Energy Company are bound by this Judgment.”

On April 5, 2010, an explosion occurred at Massey's Upper Big Branch Mine located at Montcoal, West Virginia. Twenty nine miners were killed. As stated by the petitioners, investigations subsequent to the disaster found systematic mine safety compliance failures leading up to the explosion. In the aftermath of the disaster, regulatory proceedings were conducted and multiple lawsuits were filed in various courts.⁴

II. Procedural Background

A. The First Contempt Petition—filed by Manville Trust

On April 16, 2010, Manville Trust, the sole movant, filed a petition in the Circuit Court of Kanawha County seeking a rule to show cause why the individual respondents should not be held in civil contempt for violating the June 30, 2008, settlement order. The petition for contempt was filed in the shareholder derivative action settled and dismissed pursuant to the June 30, 2008, order. The petition included a request for expedited discovery.

The petition for contempt did not assert claims by Manville Trust other than derivatively on behalf of Massey. Manville Trust maintained, inter alia, that a mine safety compliance reporting system was integral to the terms of the 2008 order and that, consequently, the failure to include such a report in Massey's 2009 corporate responsibility disclosure suggested a wide-ranging breach of the 2008...