The Register-Herald, Beckley, West Virginia

August 15, 2010

Investors say company exaggerated safety claims

Profits at any cost led to poor conditions before blast at UBB mine, lawsuits allege

From The Register-Herald and Bluefield Daily Telegraph staffs

What sparked an explosion that roared through Massey Energy’s Upper Big Branch mine on April 5 is still a mystery. High levels of methane and coal dust are the assumed culprits, but investigations are ongoing to pinpoint the cause of the country’s worst mine disaster in four decades.

The energy giant’s stockholders aren’t waiting for an official ruling to demand their own answers — and money they say they lost.

Massey investors are lined up at the courthouse. They claim Massey, controversial chief executive Don Blankenship and other company leaders misled the public about the company’s safety record.

Massey falsely claimed safety as its top concern, investors say in separate class-action lawsuits, even as it maintained a profits-at-any-cost approach.  Its strategy involved holding off regulators whose deeper involvement in the mine could have prevented the tragedy, the suits claim.

In the meantime, Massey officials hint that federal regulators are at least partially responsible for what happened at Upper Big Branch, since they hamstrung the company’s air-treatment program for the mine.

Massey has sued the federal Mine Safety and Health Administration, demanding permission to use air treatment equipment in the mine. The company denies the suit is a preemptory strike against a federal investigation into the explosion or its potential findings.

Explanations abound

Three investigations into what happened at Upper Big Branch are under way — one led by federal mine regulators, another led by the state and a third ordered by Massey. Though none is finished, theories have emerged about what caused the explosion.

Massey, for example, has suggested a sudden, uncontrollable rush of methane may have emerged from a known crack in the mine floor.

National Public Radio suggested another possibility in a recent report on the practice of mine electricians disconnecting methane monitors from large equipment in order to bypass automatic shutoff switches. The report cited a former Massey miner and two anonymous others who noted an incident as recent as February.

No tampering was discovered on sensors since recovered from the mine, however.

Massey has disputed the report from the beginning. In its own interviews with miners, the company says it has not found one who reports seeing a monitor bypassed on a working machine.

“Massey’s safety policy forbids the operation of mining machines without working methane monitors,” company spokesman Jeff Gillenwater wrote in response to submitted questions about the shareholder suits, conditions at Upper Big Branch and theories about what caused the blast.

Blankenship has not responded to repeated requests to discuss those and other developments since the explosion.

Gillenwater said a sudden “inundation” of methane occurred in the mine sometime after the shift started at Upper Big Branch that Monday afternoon. Three foremen conducted routine checks at the beginning of the shift, he wrote, “and methane measurements ranged from zero to nearly zero.”

“There was no indication of a dangerous condition, yet only a few tens of minutes later the explosion occurred,” he said.

Massey also disputes claims made by the investors in lawsuits filed in federal district court. The company has yet to make a formal response, as it waits for the investors to sort out whether the lawsuits will be merged and who will lead the case.

“Massey disagrees with the claims made in the lawsuits and will contest the suits vigorously,” wrote Gillenwater.

Massey’s record

The lawsuits are less focused on an exact cause of the explosion as they are on general safety conditions in Massey mines.

The first was filed three weeks after the explosion. The Macomb County Employees’ Retirement System, a plan covering workers in Detroit’s northern suburbs, accused Massey and its management of exaggerating their commitment to safety to pump up the company’s stock price.

“(M)assey claimed to be one of the safest mine operators in the industry, regularly touting its safety advancements and boasting of awards it had received based upon the purported safety of its operations,” the lawsuit stated. “Massey regularly told investors that safety was its number-one priority. … In fact, safety at Massey’s mines was repeatedly sacrificed so that aggressive production goals could be met.”

The suit claimed it wasn’t until the Upper Big Branch explosion that Massey’s true record came to light, drawing criticism even from President Barack Obama, who excoriated company officials who “put their bottom line before the safety of their workers.”

Blemishes on Massey’s record are years old. The suit describes the Jan. 19, 2006, conveyor belt fire at Massey’s Aracoma Alma mine in Melville, W.Va. Two miners disoriented in the smoke died from carbon monoxide poisoning. Three years later, in December 2008, the company agreed to pay $4.2 million in fines and penalties after an investigation by the FBI and federal inspectors.

“Following the Aracoma mine tragedy, Massey repeatedly assured investors that it had a strong commitment to safety throughout its operations, and a proven track record of safety second to none in the industry,” the suit states. “In fact, the company had a long history of ignoring mine safety regulations and delaying safety improvements that would interfere with its ability to pull coal out of the ground.”

Massey was “deliberately permitting miners to work in unsafe conditions,” the suit states, “such that it was only a matter of time before another accident like that at the Aracoma mine would occur, injuring or killing Massey employees and jeopardizing the company’s financial condition and overall operations.”

The investors blame Massey not only for the Upper Big Branch tragedy, but also for a subsequent drop in the price of the company’s stock. Within two days of the blast, its shares had shed nearly one-fifth of their value.

The retirement fund, which bought 4,000 Massey shares in January, dumped its stock three days after the explosion. Its total loss was $8,160.

Legal battle brews

Investors would have avoided Massey’s stock had they known about the company’s true safety record, said Dennis Herman, a partner in Robbins Geller Rudman & Dowd LLP, the San Diego-based firm that filed the class action lawsuit on April 29.

Herman said Massey pins its safety claims on a benchmark called “non-fatal days lost,” counting the days miners miss work due to injury. The company trumpeted its results, he said, even as it encouraged miners to not fill out reports that would affect the number.

“That statistic alone was only reporting accidents after they occurred,” Herman said. “It wasn’t reporting the risks like the one that happened at the Upper Big Branch mine that could occur.”

Herman’s firm has a track record of taking on companies on behalf of investors. It led Enron shareholders, who won more than $7 billion in a case stemming from the oil company’s fraud. It has taken on cases against Goldman Sachs, Fannie Mae and WorldCom.

Darren Robbins, another partner, said Massey has hired “formidable counsel” to represent it, the New York-based firm Cravath, Swaine & Moore LLP.

“We’re pretty familiar with Don Blankenship and his regard for the victims, either human victims or financial victims of his conduct,” said Robbins. “He doesn’t historically show a lot of concern about them. I would assume that he will spend Massey’s money to try to defeat any claim against him and the board and the company.

“It will be a tough battle, I’m sure,” Robbins said. “But the facts here are so troubling that I suspect that the jury will not view the world quite the way Don Blankenship does.

Investors lost money

A separate class action suit, filed by the Firefighters Retirement System of Louisiana, notes federal inspectors might have had more authority to close Upper Big Branch had it not been for Massey’s “strategy of incessantly appealing citations and fines.”

A year ago, mine inspectors considered placing Upper Big Branch in a “pattern of violation” status, which would allow them to close part of the mine immediately upon finding a serious violation, the lawsuit states. The mine met all but one criteria for the designation: There was no outstanding order for a “significant and substantial” safety violation.

Inspectors had, in fact, issued 16 such orders, the suit states, but Massey challenged every one. The lawsuit notes, “regulators cannot count contested violations and may only consider withdrawal orders that have been issued within the past two years.

“Thus, as a result of Massey’s deliberate policy of delay through endless appeals, the company was able to successfully block the closure of (Upper Big Branch) — and the damage such a closure would inflict upon the company’s bottom line — despite the overwhelming and obvious dangers there.”

Stakes were high at Upper Big Branch, according to the firefighters’ suit. Production “was kicked into overdrive in the past year as the company strove to keep up with increasing demand for (Upper Big Branch’s) valuable metallurgical coal, which is used to make steel.”

Massey miners in 2009 took 1.2 million tons of coal from Upper Big Branch, a three-fold increase from the previous year.

The firefighters’ fund held 17,240 shares of Massey stock when the explosion happened. It dumped its shares later that week. They had lost about $43,800 in value since the fund bought them three months earlier.

When to intervene

Cecil Roberts, president of the United Mine Workers of America, agrees that federal laws should be clarified so there is little doubt as to when inspectors can intervene.

“In a situation like this, when you have a mine that’s not safe, someone absolutely has to have the authority to deal with that,” he said.

Records show the Upper Big Branch mine clearly attracted attention from inspectors, especially for issues related to methane gas and coal dust.

In 2009, inspectors cited Massey’s Performance Coal subsidiary 515 times, worth $897,325 in penalties, according to the MSHA website. The number of violations is comparable to other large mines in the region. Massey paid about a third of that assessment.

In the month before the explosion, according to MSHA records, inspectors had noted dangerous levels of combustibles inside the mine and cited bosses for not following a ventilation plan for removing potentially explosive methane and coal dust.

Less than a week before the explosion, inspectors reported, “the methane and dust control plan is not being followed.” However, their records did not note which section of the sprawling mine they reviewed.

Massey has redirected some of the blame for the mine’s ventilation problems back to MSHA. In a statement released in May, Blankenship accused the agency of forcing the company to accept changes to its ventilation plan “we did not like.”

Mine inspectors are not powerless to stop an operation, however, especially where they find “imminent danger,” said Ron Wooten, director of the state Office of Miners Health Safety and Training.

“If our guys see imminent danger, they’re pretty good at making sure corrective action is taken right then and there,” he said.

The state inspected part of the Upper Big Branch mine the day of the disaster, but it did not find any imminent threat. Wooten said operations would have ceased immediately had one been obvious.

However, the state inspector was miles from where the explosion occurred in the sprawling underground complex, which is served by two entrances, each leading to three mine sections that are 5 to 6 miles long.

Also, Wooten noted such dangers can arise in a moment, even after an inspector has visited.

“You can walk into place and inspect it and walk out of it,” he said, “and 10 minutes later something drastic could happen there.”

— This story was reported by Mannix Porterfield, Bill Archer and Jim Workman.