FOR THE SAKE OF MASSEY COAL - A Hundred Million Here, A Few Billion There

(07/09/2007)

By Bob Weaver

Massey Coal's woes continue to mount and Don Blankenship could be on a short leash.

A circuit court jury has ordered Massey and a subsidiary to pay more than $219 million in damages to Wheeling-Pittsburgh Steel Corp. in a contract dispute.

The decision was reached in a month-long trial in Brooke County.

Wheeling-Pitt sued Massey in April 2005, claiming Massey failed to deliver 104,000 tons of metallurgical grade coal per month as required under a contract.

Wheeling-Pitt said West Virginia Energy, a Massey representative, started diverting coal from its contract to the spot market to take advantage of higher prices.

The Brooke County jurors agreed that Wheeling-Pitt was injured, ordering Massey to pay them $119.8 million in compensatory damages. Massey and Central West Virginia Energy must also pay $50 million each in punitive damages.

Wheeling Pitt's lawyers said "This jury of six sent a loud and clear message that West Virginia is not going to tolerate the kind of outrageous conduct that Massey engaged in."

Wheeling-Pitt said when the price of met coal went up, Massey started cheating Wheeling-Pitt by shorting it and sending its coal abroad and making millions of dollars.

Massey, a company with a lengthy record of environmental abuses and major proponent of mountaintop removal, now faces fines worth an estimated $2.4 billion dollars from a lawsuit alleging it violated the federal Clean Water Act.

The environmental violations happened thousands of times in both West Virginia and Kentucky.

Massey claims the vast majority of the incidents had little or no impact on water quality.

Massey has said it doesn't believe the lawsuit, filed by federal prosecutors, will have much impact on its bottom line.

Historically, such suits are appealed for years, and when settled, companies like Massey pay pennies on the dollar.

But analysts who looked at the lawsuit's multi-billion-dollar price tag are warning investors to look at the problem otherwise.

Filed on behalf of the US Environmental Protection Agency, the federal lawsuit alleges Massey operations exceeded permit limits 4,600 times during the last six years.

That's about 69,000 days' worth of Clean Water Act violations.

Meanwhile, New York-based hedge fund Third Point has had enough of Massey Energy Co. and Chief Executive Don Blankenship.

They've quit Massey's official board.

Chief Executive Daniel Loeb and analyst Todd Swanson quit the Richmond, Virginia based coal company's board.

In their resignation letter, Loeb and Swanson said Massey lost a merger opportunity with an unnamed coal company because of the board's "misguided insistence on keeping" Don Blankenship as the CEO.

They claimed loyalty to Blankenship "outweighed strategic considerations and prevented the consummation of a deal that would have been in the best interest of all shareholders."

Blankenship's claim to fame in WV politics is his political action group - "For the Sake of the Children" - that appeared to sway WV voters, including getting his Supreme Court judge elected.

Massey is appealing a federal lawsuit that resulted in a judge voiding permits for four of its surface mines and jeopardizes the longstanding industry practice of using settling ponds to remove sediment from streams at mountaintop removal mines.

Also the federal Mine Safety and Health Administration issued a record $1.5 million in fines against Massey for hundreds of safety violations.

The agency determined Massey contributed to the deaths of two miners in a January 2006 fire at the Aracoma Alma No. 1 Mine in Logan County.

Also, the Manville Personal Injury Trust is suing 14 current and former Massey Energy Inc. executives and board members, including Don Blankenship, alleging mismanagement.

They claim the defendants have exposed the Richmond, Virginia-based coal company to potentially hefty financial penalties.

The lawsuit says Massey faces a substantial threat of financial liability for violations because the defendants allegedly failed to comply with environmental and worker-safety laws and regulations.


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