Massey Managers Believed Coal Company Was Target of Obama ‘Conspiracy’

Massey Energy Co. (MEE)’s management believed government officials, including President Barack Obama, conspired to destroy the coal producer, according to unsealed court records in a case related to a fatal mine accident.

Don Blankenship, Massey’s former chief executive officer, and Chairman Bobby Ray Inman, a retired U.S. Navy admiral, made clear in sworn testimony that they “firmly believed the company was being targeted by the government,” lawyers for Massey investors who are suing the company’s directors said in filings unsealed today in state court in Delaware.

Inman, a former deputy director of the Central Intelligence Agency, “was unequivocal in his assertions” in pre-trial depositions that mine regulators, union officials, plaintiffs lawyers “and President Obama himself harbored a secret agenda to destroy Massey, and that the large numbers of safety violations Massey received were proof of the conspiracy,” according to the lawyers.

The filings were made public today as part of a lawsuit brought by the New Jersey Building Laborers Pension Fund seeking to hold Massey directors liable for the Richmond, Virginia-based company racking up more than $25 million in assessed violations by the U.S. Mine Safety and Health Administration.

29 Killed

The suit accuses Massey’s board of allowing managers to systematically disregard safety regulations, contributing to a blast that killed 29 miners in April 2010 at the Upper Big Branch mine in West Virginia.

Micah Ragland, a Massey spokesman, declined to comment today on the unsealed files in the Delaware case.

Massey agreed in January to be acquired by Alpha Natural Resources Inc. (ANR) for $7.1 billion. Pension fund officials contend Massey’s board agreed to sell the coal company at a fire-sale price because of its poor safety record. They contend Massey officials could have gotten at least another $1.5 billion for the shares.

Delaware Chancery Court Judge Leo Strine is scheduled to hear the investors’ request to block the deal at a May 26 hearing in Wilmington.

A state investigator concluded last week that Massey officials were responsible for the Upper Big Branch explosion. The company “operated its mines in a profoundly reckless manner,” according to the report issued May 19 by J. Davit McAteer, a former federal mine administrator named by West Virginia’s governor to investigate the blast.

Safety Procedures

McAteer found that Massey officials could have prevented the disaster by following “basic, well-tested” safety procedures. The report cited failures to maintain a proper ventilation system, comply with federal and state rock-dust standards and poor maintenance on safety equipment.

Hughie Stover, the Upper Big Branch mine’s security chief, pleaded not guilty today to charges of obstruction of justice and lying to the FBI and mine-safety regulators in connection with the explosion at the facility. Stover is accused of ordering an associate to destroy thousands of security documents tied to the mine.

The mine, about 46 miles (76 kilometers) south of Charleston, West Virginia, is run by Massey’s Performance Coal Co. unit. The nonunion mine opened in October 1994.

Over the years, federal safety inspectors cited the operation hundreds of times for violations including the buildup of explosive methane and coal dust, according to filings by the pension fund’s lawyers.

Blankenship, who worked with Massey for almost 30 years before stepping down as chairman and CEO in December, battled with mine-safety regulators over conditions at the company’s facilities.

‘Run Coal’

The pension fund’s lawyers cite a 2005 memo Blankenship wrote to Massey mining managers telling them to disregard instructions to improve safety in the mines or orders “to do anything other than run coal.”

“This memo is necessary only because we seem not to understand that coal pays the bills,” Blankenship wrote.

While studying the company in preparation for a bid, Alpha officials found “the Massey culture is driven by a strong focus on production, with the other facets of the operations such as employee safety and regulatory compliance receiving minimal consideration,” according to filings unsealed in the Delaware case.

Ted Pile, a spokesman for Abingdon, Virginia-based Alpha, didn’t immediately return a phone call and e-mail seeking comment.

Investor Complaints

In the wake of the Upper Big Branch explosion, Massey’s board formed a committee to examine whether investor complaints about directors’ lack of oversight had merit.

In November, Massey’s directors concluded the company had to be sold and Blankenship ousted after the committee found longstanding operational problems and a corrosive relationship with mine regulators, according to the unsealed papers.

The group told directors that “a change in top leadership was required to rebuild the company’s reputation,” the pension fund’s lawyers said in the filing.

Massey officials denied last week that directors forced Blankenship to step down. The board’s independent directors “did not make a recommendation to the board to remove Mr. Blankenship or request his resignation,” officials said in a May 19 filing with the U.S. Securities and Exchange Commission.

‘Clean Slate’

The sale to Alpha was motivated by directors’ desire to be protected from liability for shareholder suits, the lawyers added. The pension’s fund case was filed as a so-called derivative suit, which would return any recovery to the company. Individual shareholders wouldn’t receive any direct payments as a result of the suit.

“The Massey board did not negotiate the merger from a clean personal slate,” the pension fund’s lawyers said.

Massey fell 45 cents to $60.75 at 4:15 p.m. in New York Stock Exchange composite trading. Alpha dropped 39 cents to $49.89.

The case is New Jersey Building Laborers Pension Fund v. Blankenship, CA5430, Delaware Chancery Court (Wilmington).

To contact the reporter on this story: Jef Feeley in Wilmington, Delaware, at jfeeley@bloomberg.net; Sophia Pearson in Wilmington at spearson3@bloomberg.net.

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net.

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