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,
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.
Submitted: March 6, 2018
from the Circuit Court of Kanawha County Honorable Charles E.
King, Jr. Civil Action No. 10-C-715
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
N. Frankovitch, Esq. Frankovitch, Anetkis, Simon, Decapio
& Pearl LLP Weirton, West Virginia Counsel for Petitioner
Arlia and Executive Committee Member
A. Seely, Esq., pro hac vice Robbins Arroyo, LLP San Diego,
California Executive Committee Member
Razzouk, Esq., pro hac vice Jay N. Razzouk, Attorney at Law
San Bernardino, California Executive Committee Member
G. Yates, Jr., Esq. Law Offices of Alfred G. Yates, Jr., P.C.
Pittsburgh, Pennsylvania Counsel for Petitioner Arlia and
Executive Committee Member
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,
V. Flaherty, Esq. Flaherty Sensabaugh Bonasso PLLC
Charleston, West Virginia Counsel for Respondents
Blankenship, Phillips, Adkins, Jarosinski, Harvey, and
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.
JUSTICE DAVIS, deeming herself disqualified, did not
BY THE COURT
trial court is vested with a sound discretion in granting or
refusing leave to amend pleadings in civil actions. Leave to
amend should be freely given when justice so requires, but
the action of a trial court in refusing to grant leave to
amend a pleading will not be regarded as reversible error in
the absence of a showing of an abuse of the trial court's
discretion in ruling upon a motion for leave to amend.'
Syllabus point 6, Perdue v. S.J. Groves & Sons
Co., 152 W.Va. 222, 161 S.E.2d 250 (1968)." Syl.
Pt. 4, Bowyer v. Wyckoff, 238 W.Va. 446, 796 S.E.2d
"Appellate review of a circuit court's order
granting a motion to dismiss a complaint is de
novo." Syl. Pt. 2, State ex rel. McGraw v.
Scott Runyan Pontiac-Buick, Inc., 194 W.Va. 770, 461
S.E.2d 516 (1995).
"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).
"The procedural laws of this state necessarily apply to
matters that are brought in the courts of West
Virginia." Syl., in part, State ex rel. Airsquid
Ventures, Inc. v. Hummel, 236 W.Va. 142, 778 S.E.2d 591
purpose of the words 'and leave [to amend] shall be
freely given when justice so requires' in Rule 15(a)
W.Va. R. Civ. P., is to secure an adjudication on the merits
of the controversy as would be secured under identical
factual situations in the absence of procedural impediments;
therefore, motions to amend should always be granted under
Rule 15 when: (1) the amendment permits the presentation of
the merits of the action; (2) the adverse party is not
prejudiced by the sudden assertion of the subject of the
amendment; and (3) the adverse party can be given ample
opportunity to meet the issue." Syl. Pt. 3, Rosier
v. Garron, Inc., 156 W.Va. 861, 199 S.E.2d 50 (1973),
overruled on other grounds by Bradshaw v. Soulsby,
210 W.Va. 682, 558 S.E.2d 681 (2001).
"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." Syl. Pt. 2, Manville Pers.
Injury Settlement Tr. v. Blankenship, 231 W.Va. 637, 749
S.E.2d 329 (2013).
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
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.
Factual and Procedural Background
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
investigations and lawsuits ensued.
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. (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
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").The Delaware cases were subsequently
consolidated with one another and amended to include direct
claims on behalf of the shareholders themselves.
after the explosion, another company in the coal industry,
Alpha Natural Resources, Inc. ("Alpha"), initiated
discussions with Massey about a possible corporate
merger. 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,
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.
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.
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. 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
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 (W.Va. May 31,
2011) (memorandum order).
lengthy order entered on May 31, 2011, the Delaware Court of
Chancery refused to enjoin the merger and refused to create a
"litigation trust" in which to maintain the
Delaware plaintiffs' derivative claims. See In re
Massey Energy Co. Derivative and Class Action
Litig., C.A. No. 5430-VCS, 2011 WL 2176479 (Del. Ch. May
31, 2011) (unpublished opinion) ("Massey Energy
I"). In short, the Court of Chancery concluded that
the proposed merger would be beneficial to Massey's
shareholders. The court explained, inter alia, that
[o]n the day the Massey Board unanimously approved the
Merger, January 27, 2011, the Merger consideration amounted
to a 25% premium over Massey's stock price based on the
previous day's closing price of Massey and Alpha stock, a
95% premium over the closing price of Massey stock on October
18, 2010 before it was publicly reported that Massey was
engaged in a strategic alternatives review, and even a 27%
premium over Massey's stock price the day of the
explosion at the Upper Big Branch mine.
Id. at * 1.
undisputed that the merger proposal was thereafter submitted
to a stockholder vote, where ninety-nine percent of the
Massey shares that were voted were cast in favor of the
transaction. Accordingly, the merger became effective June 1,
2011. The company formerly known as Massey became a
wholly-owned subsidiary of Alpha and, as the sole
shareholder, Alpha replaced Massey's entire Board of
Directors with a single director of its
choosing. Importantly, upon the merger, the
petitioners ceased being Massey stockholders.
addition to the case sub judice, on May 31, 2011, the
petitioners brought a separate legal proceeding in the
Circuit Court of Kanawha County seeking to hold Massey
corporate directors and officers in contempt for failing to
comply with an order entered by the circuit court in 2008 in
a prior shareholder derivative lawsuit. See
Manville, 231 W.Va. 637, 639-40, 749 S.E.2d 329, 331-32.
The circuit court's 2008 order had required Massey to
adopt and follow certain mine safety standards and
procedures, but the petitioners asserted that the directors
and officers failed to comply, resulting in the UBB
explosion. Id. The contempt proceeding was dismissed
in September 2011 upon the circuit court's conclusion
that after the merger, the petitioners were no longer Massey
shareholders and, therefore, lacked derivative standing under
the applicable Delaware law to pursue relief on behalf of the
company. Id. at 643, 749 S.E.2d at 335.
Subsequently, this Court affirmed the circuit court's
dismissal of the Manville contempt action.
Id. at 648, 749 S.E.2d at 340.
on June 24, 2011, the respondents filed a motion in the case
at bar asking the circuit court to dismiss the
petitioner's Amended Complaint pursuant to Rule 12(b)(6)
of the Rules of Civil Procedure. They also opposed the
petitioners' motion for leave to file the proposed Second
Amended Complaint. The respondents argued that after the
merger, the petitioners were no longer Massey shareholders
and lacked standing to assert derivative claims, and that
amending their complaint a second time would be futile. After
briefing and a hearing, the circuit court entered an order on
November 14, 2013,  that both dismissed the Amended Complaint
and denied the motion for leave to file the Second Amended
Complaint. The circuit court's only explanation was that
the rulings were "[b]ased upon, and for the reasons set
forth in, " this Court's opinion in
Manville, 231 W.Va. 637, 749 S.E.2d 329. The
petitioners appealed and, on August 26, 2014, we entered an
order remanding the case back to the circuit court for entry
of an order containing findings of fact and conclusions of
remand, the petitioners sought a scheduling order for
additional briefing and a hearing, but the circuit court
concluded that further proceedings would be beyond the scope
of the remand. The circuit court did grant the parties the
opportunity to submit proposed orders that included findings
of fact and conclusions of law. On November 20, 2014, the
circuit court entered an Amended Final Order explaining its
reasons for dismissing the Amended Complaint and for denying
the motion for leave to file the Second Amended Complaint.
Amended Final Order, the circuit court explained that upon
the consummation of the merger with Alpha, the petitioners
were no longer shareholders of Massey and, therefore, had
lost standing under the applicable Delaware law to pursue a
shareholder derivative suit. The circuit court rejected the
petitioners' argument that they retained standing under a
fraud exception in Delaware law, concluding that the
petitioners could not prove that the merger had been
effectuated "solely" to deprive them of derivative
standing. Moreover, the circuit court found it would be
futile to allow the petitioners to file their Second Amended
Complaint. To the extent that the Second Amended Complaint
reasserted the derivative claims, the circuit court
reiterated that the petitioners had lost shareholder standing
and could not prove the fraud exception. With regard to the
direct claims that the petitioners sought to add, the circuit
court ruled that to be entitled to money damages under
Delaware law, the petitioners would need to prove that the
officers and directors acted in bad faith to approve a sale
of Massey at a materially inadequate and unfair price. The
circuit court found that the proposed Second Amended
Complaint did not allege facts to establish that the merger
was "materially inadequate" or that any inadequacy
was the result of "bad faith" conduct by the
respondents. Furthermore, the circuit court recited with
approval the findings of the Delaware Chancery Court about
the respondents' "reasonable efforts to get the
highest price it could from Alpha" and the substantial
premium received by shareholders as a result of this merger.
See Massey Energy I, 2011 WL 2176479, at *4.
Finally, the circuit court concluded that it would be
prejudicial to the respondents to allow the petitioners to
pursue futile claims in another amended complaint.
petitioners once again appeal to this Court. While this
appeal was pending,  the Delaware Court of Chancery entered
its final order on May 4, 2017, dismissing all of the
Delaware plaintiffs' claims-both derivative and direct-in
that Massey litigation. See Massey Energy II, 160
A.3d 484. Thereafter, we allowed the parties to file
supplemental briefs addressing the ...