Judge Won’t Dismiss Massey Shareholder Suit Over Safety

By | March 30, 2012

A federal judge refused Wednesday to dismiss a lawsuit by former Massey Energy shareholders who say they were deliberately misled about the company’s safety record before the Upper Big Branch mine disaster in West Virginia killed 29 men in 2010.

U.S. District Judge Irene Berger issued her ruling in Beckley, West Virginia, allowing the case led by the Massachusetts Pension Reserves Investment Trust to proceed. They and other investors claim Massey’s deception artificially inflated stock prices between February 2008 and July 2010.

Virginia-based Alpha Natural Resources, which bought Massey last year for $7.1 billion, did not immediately comment on the ruling.

The investors sued Massey within a month of the worst U.S. coal mine disaster in 40 years, arguing the company had repeatedly claimed to be one of the safest operators in the industry. By regularly touting safety achievements, Massey led them to believe safety was a corporate priority.

The investors say they learned otherwise after the blast, when news media began reporting the long history of violations at Upper Big Branch. Four separate investigations have since revealed that Massey routinely ignored standard safety practices and systematically hid violations and problems from inspectors.

In January, plaintiffs’ attorney Joel Bernstein told The Associated Press that investors might have spent their money differently had the company been required to report serious safety violations to the U.S. Securities and Exchange Commission. Federal law now requires that.

The U.S. Mine Safety and Health Administration shut Upper Big Branch down 48 times in 2009, but the laws allowed Massey to resume production as soon as problems were fixed. Between Jan. 1, 2009, and April 5, 2010 — the day of the blast — MSHA cited 645 violations and imposed penalties of more than $1.2 million.

Bernstein said investors didn’t know about them.

Four investigations by the state, MSHA, the United Mine Workers of America and an independent panel appointed by former West Virginia Gov. Joe Manchin all agreed on what happened.

Worn and broken cutting equipment created a spark that ignited methane gas that had been accumulating in the mine. Explosive coal dust that also had been allowed to accumulate then turned what should have been a minor flare-up into a chain-reaction blast that traveled miles of underground corridors. Clogged and broken water sprayers that could have contained the fireball also failed to protect the miners.

But in its final report, MSHA said the root cause was Massey’s “systematic, intentional and aggressive efforts” to conceal life-threatening problems. MSHA said mine managers went so far as to maintain two sets of pre-shift inspection books — an accurate, production-focused record for itself, and a sanitized version to throw off inspectors.

Through those investigations, investors also learned that Massey schemed to control its injury rate. One miner told investigators Massey would “just pay guys to sit in the bathhouse or stay home if they got hurt — anything but fill out the paperwork.”

Berger wrote that the various disclosures “would suggest that defendants perpetrated a fraud on the market by omitting the extent of its safety compliance record,” and that “the materialization of the risk of Massey’s misleading statements was realized” in the blast.

She ruled that the shareholders “have sufficiently alleged particular facts supporting an allegation that its losses were caused by Massey’s misleading and false statements about the safety of its mines.”

The shareholders argued that Massey began a concerted campaign to mislead them after the 2006 fire that killed two men at Massey’s Aracoma Coal Co. Alma No. 1 mine in West Virginia.

In its 2007 annual report, for example, Massey declared that “a safe mine is a productive mine.” It also said its formula for success was “safety first, production second and measurement third.”

The investigations of UBB, however, found that Massey valued profits over people, and that upper management had production reports faxed out of the mine every 30 minutes. At a congressional hearing Tuesday, officials testified the longwall mining machine made the company $700,000 per shift.

The explosion also triggered a continuing criminal investigation by the U.S. Department of Justice.

The mine’s former superintendent pleaded guilty today to a charge of conspiracy to defraud the federal government. Gary May is apparently cooperating with federal prosecutors in a continuing criminal investigation. He is accused, among other things, of disabling a methane gas monitor and falsifying records.

Former security chief Hughie Elbert Stover, meanwhile, is appealing his conviction for lying to investigators and attempting to destroy records. He was sentenced in February to three years in prison — one of the stiffest punishments ever handed down in a mine safety case.

Topics Lawsuits USA Legislation Virginia West Virginia

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