Alpha tries to get Follansbee coal lawsuit moved to federal court

Mountain State Carbon LLC, an affiliate of international steelmaker OAO Severstal, on June 15 tried to hold off an attempt by a unit of Alpha Natural Resources (NYSE: ANR) to shift a long-running lawsuit in a West Virginia county court to the U.S. District Court for the Northern District of West Virginia.

The lawsuit, filed by Mountain State Carbon, was lodged nearly four years ago at the Brooke County, W.Va., Circuit Court against units of Massey Energy over coal supply issues at Mountain State Carbon’s Follansbee coke plant. Alpha took over Massey in June 2011, thus inheriting the lawsuit. Massey on June 13 motioned the federal court for a move of the lawsuit to the federal court.

Mountain State Carbon pointed out in a June 15 filing at the federal court that the Brooke County court had set this case for a July 30 trial start after nearly four years of work, with the trial expected to take much of August.

“The compensatory damages alleged in the case are substantial, punitive damages may be awarded, and a prompt trial to recover those damages is obviously important to Mountain State,” the coke producer wrote. “A delay in the trial would likely be lengthy and could cause enormous prejudice. The case is against Defendants Central West Virginia Energy Company (‘CWVEC’), Massey Energy Company, Inc. and Massey Coal Sales Company, Inc. (all collectively referred to hereinafter as ‘Massey’) for breach of contract and tortious interference arising out of the failure to supply metallurgical coal under a long-term coal supply agreement to the Follansbee Plant.” Massey has been the sole high-vol coal supplier to the plant.

On June 13, Massey removed this case to the federal District Court, based upon summary assertions that those state law claims being contested between non-debtor litigants are somehow “related to” a set of bankruptcy proceedings involving various RG Steel entities now pending in Wilmington, Del., Mountain State wrote. “Massey’s assertion that this Court possesses bankruptcy jurisdiction is patently wrong, under even the most liberal interpretation of applicable case law authority, and in any event this is a classic case calling for abstention and/or equitable remand, leading to the inescapable conclusion that Massey’s removal of this case was motivated by an intention to disrupt and delay the upcoming trial,” wrote Mountain State. “Because this Court’s lack of jurisdiction is clear, and because the consequences of delay of the trial to Mountain State would be so prejudicial, Mountain State respectfully requests that this Court set an expedited schedule to resolve this matter.”

Dispute centers on whether Mountain State is related to bankrupt company

The substantive basis for Massey’s claim of “related to” jurisdiction appears to be based upon two factors: first, RG Wheeling’s 50% membership interest in Mountain State; and second, Massey’s assertion that Mountain State should be viewed as being an “alter ego” of RG Wheeling. “Neither asserted basis is adequate to sustain jurisdiction in this Court,” Mountain State contended. Mountain State is a joint venture between two wholly separate companies and there are no conceivable facts that could be alleged from which one could conclude that Mountain State and RG Wheeling are alter egos, said Mountain State.

This is not a new tactic, Mountain State added, referring to a case of a few years ago that was infamous in the coal industry at the time. “In a prior Brooke County case resulting in a $267 million judgment, immediately prior to trial Massey moved on multiple occasions to continue the trial and even sought emergency relief from the West Virginia Supreme Court in the form of a Writ just days before trial. Such relief was appropriately denied.”

Massey said in the June 13 removal notice that on May 31, WP Steel Venture LLC, Metal Centers LLC, RG Steel LLC, RG Steel Railroad Holding LLC, RG Steel Sparrows Point LLC, RG Steel Warren LLC, RG Steel Wheeling LLC, and RG Steel Wheeling Steel Group LLC filed voluntary Chapter 11 bankruptcy petitions in the U.S. Bankruptcy Court for the District of Delaware. Mountain State Carbon is listed on the “Organizational Chart of Debtors” filed by those companies in the bankruptcy case, Massey added. Massey is petitioning for the District Court in northern West Virginia to take this case, then for the case to be transferred from there to the U.S. District Court for the District of Delaware.

Mountain State Carbon is a “joint venture” between debtor RG Steel Wheeling, a 50% owner and managing member of Mountain State Carbon, and SNA Carbon LLC, the other 50% owner and member of Mountain State Carbon, Massey contended. At issue in the state court action are questions of liability, as well as alleged damage claims by Mountain State Carbon, of approximately $31.8m, Massey noted.

There is already a pending lawsuit between Central West Virginia and Mountain State Carbon in the U.S. District Court for the Southern District of West Virginia. In that case, Central West Virginia has sued Mountain State Carbon, debtor RG Steel Wheeling (as successor in interest to Severstal Wheeling Inc.) and two other entities related to Severstal Wheeling Inc., namely Severstal North America Inc. and OAO Severstal. At issue in that case are damage claims by Central West Virginia of approximately $31.5m.

Through debtor RG Steel Wheeling’s equity stake and other arrangements with Mountain State Carbon, RG Steel Wheeling holds a right to purchase 50% of the coke production at the Mountain State Carbon facility, which has in excess of 1 million tons of metallurgical coke capacity, making it the third largest coke plant in the United States, Massey noted. Since 2006, more than $160m has been invested in Mountain State Carbon to rebuild and refurbish its coke production assets.

OAO Severstal’s website said that Severstal Wheeling has “50 percent ownership of the joint venture Mountain State Carbon, a blast furnace coking coal production facility in West Virginia.”

About Barry Cassell 20414 Articles
Barry Cassell is Chief Analyst for GenerationHub covering coal and emission controls issues, projects and policy. He has covered the coal and power generation industry for more than 24 years, beginning in November 2011 at GenerationHub and prior to that as editor of SNL Energy’s Coal Report. He was formerly with Coal Outlook for 15 years as the publication’s editor and contributing writer, and prior to that he was editor of Coal & Synfuels Technology and associate editor of The Energy Report. He has a bachelor’s degree from Central Michigan University.