Massey Wrongful-Death Trial Is Latest `Black Eye' for Coal Firm

By Thom Weidlich and Margaret Cronin Fisk

Nov. 7 (Bloomberg) -- On Oct. 19, 2005, Don L. Blankenship, chairman and chief executive officer of Massey Energy Co., the fourth-largest U.S. coal producer, sent a memo to the company's deep-mine superintendents.

``If any of you have been asked by your group presidents, your supervisors, engineers or anyone else to do anything other than run coal (i.e. -- build overcasts, do construction jobs, or whatever) you need to ignore them and run coal,'' he wrote. ``This memo is necessary only because we seem not to understand that coal pays the bills.''

Precisely three months later, a fire broke out in Aracoma Alma No. 1, a six-square-mile Massey mine cut into the side of the earth near Stollings in southwest West Virginia. Two miners died.

Their widows, in a wrongful-death lawsuit against Blankenship, 58, Massey and its A.T. Massey and Aracoma Coal units, cite the memo as evidence that production, not safety, was Blankenship's and the company's priority. A trial of their claims starts Nov. 10 following a failure late last month to resolve the dispute in mediation. Massey and Blankenship deny responsibility.

Massey, based in Richmond, Virginia, is no stranger to litigation. The company faces a trial in another suit in February, over claims that pollution from a mine in Rawl, West Virginia, damaged property and caused another two deaths.

Families are seeking $125 million in actual damages, the equivalent of Massey's 2008 estimated net income, according to an average of nine analysts compiled by Bloomberg, and up to $1 billion in punitive damages. Massey has denied liability.

Contract Suit

In another case, the West Virginia Supreme Court of Appeals decided May 22 not to hear an appeal of a $220 million damage award to Wheeling-Pittsburgh Corp. stemming from a lawsuit over a coal-supply contract. Massey appealed to the U.S. Supreme Court.

And Massey agreed in January to pay the U.S. Environmental Protection Agency $20 million for water-pollution violations at mines in Kentucky and West Virginia.

In the Alma fire case, the widows of Don Israel Bragg and Ellery ``Elvis'' Hatfield seek unspecified actual damages, in addition to punitive damages, which could be in the millions of dollars. Three of the seven largest U.S. jury awards in 2007 occurred in West Virginia, according to data compiled by Bloomberg.

Massey in March 2007 was fined $1.5 million by federal regulators who said there were 25 violations that contributed to the men's deaths. Massey said at the time that it appeared there were conditions that did not meet company standards. A grand jury is investigating the incident for possible criminal charges, Massey said in an August regulatory filing.

Blankenship, General Counsel M. Shane Harvey and company spokesman Jeff Gillenwater didn't return calls for comment.

CEO's Reputation

``This case is a black eye for Blankenship in terms of PR,'' said Steven Marascia, an analyst at Anderson & Strudwick in Richmond who has a ``neutral'' rating on the shares and owns none. Before the trial, Blankenship had earned respect among investors for increasing profit and production as mines face depletion in Central Appalachia, where Massey is the largest producer, Marascia said.

The fire that killed Bragg and Hatfield was caused by frictional heating from a misaligned conveyer belt, according to a U.S. Labor Department report. Ethel, West Virginia-based Aracoma Coal, which ran the mine, knew about the malfunction, according to the widows' complaint.

As the fire worsened, additional safety violations led to injuries among the 29 miners on the shift as well as the two deaths, according to the complaint. It cites missing ventilation equipment, inaccurate maps, inadequate training, a closed main water valve, a fire hose that didn't fit the outlet and malfunctioning carbon-monoxide monitors.

Victims Separated

Bragg, 33, and Hatfield, 46, became separated from the other workers while trying to escape. They died of asphyxiation and carbon monoxide poisoning, according to their widows. Their bodies were found two days later.

State Circuit Court Judge Roger L. Perry, who's overseeing the case, wrote in a Sept. 22 order that a major question for the jury will be whether Blankenship meant by his Oct. 19 memo that mine managers should disregard safety in favor of production.

The memo essentially told the managers to ``not devote necessary time to safety-related construction projects,'' lawyers for the widows, Delorice Bragg and Freda Hatfield, wrote in the complaint. Blankenship created ``a corporate attitude of indifference and hostility towards safety measures,'' they wrote.

Blankenship and the company defendants deny the Oct. 19 memo meant they were lax on safety. The CEO said in a July 11 deposition that he sent the memo because he was concerned employees -- or members, as the company calls them -- were working on projects that wouldn't be needed for several years.

`Generic Memo'

``I sent out a generic memo that the building of construction projects in the mines for future use at the expense of production today was a bad choice, given that we were having trouble making orders,'' he said.

He said a follow-up memo a week later made it even clearer that he didn't mean to forgo safety.

``I would question the membership of anyone who thought that I consider safety to be a secondary responsibility,'' he wrote. ``If you have construction jobs at your mine that need to be done to keep it safe or productive, make every effort to do those jobs without taking members and equipment from the coal-producing sections that pay the bills.''

Massey fell $1.57 to $18.14 in New York Stock Market composite trading yesterday.

The case is Bragg v. Aracoma Coal Co., 06-c-372, West Virginia Circuit Court, Logan County (Logan).

To contact the reporters on this story: Thom Weidlich in New York at tweidlich@bloomberg.net; Margaret Cronin Fisk in Southfield, Michigan, at mcfisk@bloomberg.net.