The company formerly known as Massey Energy now has until June 18 to lodge its answer to an amended complaint filed by the Commonwealth of Massachusetts Pension Reserves Investment Trust and other Massey investors over what the plaintiffs claim was Massey’s shoddy and deliberately hidden mine safety record.
This lawsuit was filed in the U.S. District Court for the Southern District of West Virginia in April 2010, right after a blast at Massey’s Upper Big Branch mine (UBBM) killed 29 workers. Massey was taken over in June 2011 by Alpha Natural Resources (NYSE: ANR), which renamed Massey as Alpha Appalachia Holdings, which is now one of the defendants in the suit.
The plaintiffs allege that the price of Massey stock was artificially inflated between Feb. 1, 2008, and July 27, 2010, because Massey and several of its senior executives and directors misled the market about its safety and compliance record and its “disregard” for safety regulatory compliance.
On April 9, both sides filed an agreement with the court that gives Massey the June 18 deadline to file its answer to the latest amended version of the lawsuit. On March 27, Judge Irene Berger refused Massey’s petition to dismiss this case, setting up the need for Massey to answer the amended complaint.
“The court finds that plaintiffs have appropriately pled allegations sufficient to support loss causation,” the judge wrote in the March 27 decision. “While the five alleged corrective disclosures provide this court with a basis to conclude that ‘new facts’ were revealed which would suggest that defendants perpetrated a fraud on the market by omitting the extent of its safety compliance record, the court finds that the materialization of the risk of Massey’s misleading statements was realized in the UBBM explosion. In this case, the allegations, accepted by the court as true, indicate that prior to the tragic UBBM explosion, defendants did not directly disclose any facts to investors about its safety and compliance record with the exclusion of the lone safety metric of the NFDL.”
NFDL (Number of Fatal, Nonfatal Days Lost to injury) is a key U.S. Mine Safety and Health Administration metric for assessing coal mine safety.
“After the April 5, 2010 explosion at the UBBM, MSHA and various media outlets began to release data about the nature of violations cited at UBBM and other Massey mines,” the judge continued. “This data included the number of violations Massey had amassed in recent years, including at UBBM, and the extent of those violations, which included citations for ventilation and air quality of the mines. Plaintiffs have alleged that MSHA, as a result of on-site investigations of the UBBM explosion, revealed that the ‘cause of the Explosion largely involved basic mine safety practices that were not adhered to: inadequate water sprays, dull cutting bits, and extraordinary levels of float coal dust due to inadequate rock dusting.’ Therefore, the explosion and the cause of the explosion revealed to the market the fraudulent nature of which plaintiffs complain, specifically, that defendants misled the market about the safety at its mines and its commitment to put production over safety. Therefore, the court finds that plaintiffs 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.”
Plaintiffs assert two causes of action: a claim under Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 of the Securities and Exchange Commission, against the defendants collectively; and a claim under Section 20(a) of the Act against several former Massey offices.
The Massey/Alpha defendants tried to argue that plaintiffs have filed a consolidated amended class action complaint that is void of any substantive facts to support a claim under Section 10(b) and Rule 10b-5, and because the cause of action in count one is deficient, plaintiffs’ second claim was also fatally flawed.
The judge wrote about the rejected arguments: “Collectively, defendants argue that plaintiffs have filed a 165-page pleading that is void of any substantive facts to support a claim under Section 10(b) and Rule 10b-5 and assert that plaintiffs’ CAC fails as a matter of law for the following reasons: (1) The alleged misleading statements made by the company about its safety compliance record, even if presumed to be true, lacked the requisite specificity to perpetrate a fraud on the market, given that accurate information about the company’s safety compliance record was available to the market throughout the class period on the MSHA website; (2) Plaintiffs have failed to plead scienter adequately; (3) Plaintiffs are not entitled to the presumption of reliance; and (4) Plaintiffs have failed to state a coherent theory of loss causation.”