Saturday, May 26, 2018

Massey Wins, Did Justice Lose?

Over an impassioned dissent that brings into question the integrity of the decision, the West Virginia Supreme Court of Appeals denied plaintiffs in a shareholders derivative suit arising from the Upper Big Branch disaster leave to amend their complaint to establish standing to pursue their claims. 

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.

The dissent of Chief Justice Workman

There are few tenets of civil procedure as well-established as the rule of liberality in permitting amendments of a complaint. In an action as substantively and procedurally complex—as well as inevitably protracted—as the case at bar, the equity and necessity of such liberality is made plain. The majority’s rejection of petitioners’ entirely reasonable attempt to amend their complaint to comport with newly-discovered facts which were previously well beyond their reach smacks of blatant result-orientation. As is evident from even a casual read of the opinion, the majority—rather than confining itself to the allegations viewed in the light most favorable to petitioners—indulges itself in the entire universe of facts adduced to date in limited discovery and in other litigation, draws inferences and makes conclusions thereon, and summarily declares respondents to be the victors. Because the Rule 12(b)(6) stage is indisputably not the appropriate setting for such factual assessments, nor is it this Court’s role to sit as a trier of fact, I dissent.

After the tragically well-known explosion at the Upper Big Branch mine owned and operated by Massey Energy Company (“Massey”) which killed twenty-nine miners, petitioners filed a derivative shareholder action against Massey directors and officers alleging that they breached their fiduciary duties by failing to comply with worker safety laws. Contemporaneous with this action, other shareholders filed derivative actions in Delaware. Those Delaware derivative actions have continued along a track parallel to the instant action; however, the instant action was stayed for a long period of time pending the federal prosecution of Don Blankenship and the bankruptcy of Alpha Natural Resources Inc. (“Alpha,” Massey’s successor).

Subsequent to the explosion and petitioners’ original complaint in this action, Massey undertook a merger with Alpha. Subsequent to that merger, additional discovery was obtained, along with newly-available evidence from the federal prosecution, allegedly revealing that certain Massey directors and/or officers orchestrated the merger to ensure their most culpable employees (certain mine superintendents) and officers had continued employment and could therefore protect themselves by controlling the investigation into the explosion. Petitioners allege that a higher bidder was discouraged because Alpha had agreed to a “social contract” which involved retention of these culpable employees. Petitioners allege this was all done to limit the personal liability of these individuals with respect to the explosion.

Petitioners now seek to amend their long-ago-filed complaint to assert facts in support of causes of action previously unavailable to them before receipt of this new complaint to even allege such a cause of action. In short, the majority has reviewed the cobbled-together evidence from various proceedings and determined, before even being permitted to amend their complaint, that petitioners cannot win under any circumstance. Making this bold proclamation before full discovery is even conducted seems less like legal analysis and more like reverse-engineering the outcome...

To suggest that petitioners’ proposed amended complaint—on its face—is starkly lacking in sufficient allegations of actionable malfeasance on the part of Massey’s officers, given all that is publicly known (and has been federally adjudicated) about this tragic incident is flabbergasting to say the least. If petitioners cannot satisfy the high bar set by the causes of action they seek to plead, that legal issue may be presented and determined at the summary judgment stage or resolved by the jury, as appropriate. To refuse petitioners the opportunity to even conduct discovery on their allegations now that the restraints of the federal prosecution and bankruptcy proceedings have been removed casts a pall over the majority’s analysis and potential motivations. “[T]he grant or denial of an opportunity to amend is within the discretion of the [court], but outright refusal to grant the leave without any justifying reason appearing for the denial is not an exercise of discretion; it is merely abuse of that discretion and inconsistent with the spirit of the [] Rules.” Foman, 371 U.S. at 182...

I adamantly dissent.

Judge Tabit, sitting by designation, joined the dissent. (Mike Frisch)

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This is one of the most troubling decisions I have ever seen. Thank you for reporting it.

Posted by: Liz Ryan Cole | May 27, 2018 4:26:05 AM

George Fleming commented:
I been reading the Palmer Report and the news, things are getting real scary with this ‘President.’ But I could have written this post as soon as Trump was ‘elected’:

“The judges who denied this petition are angling for Trump to nominate them to the federal bench.”

Posted by: Mike Frisch | May 27, 2018 2:03:01 PM

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