Cleary Gottlieb represented Alpha Natural Resources and successfully won dismissal of a stockholder action against the former directors and officers of Massey Energy Company, which was acquired by Alpha in 2011.
On May 4, 2017, the Delaware Court of Chancery granted motions to dismiss claims against former directors and officers of Massey Energy Company.
Through the acquisition of Massey, Alpha inherited certain liabilities stemming from a tragic explosion that took place at Massey’s Upper Big Branch mine in April 2010.
The plaintiffs, who were former stockholders of Massey, lost standing to pursue derivative claims as a result of the acquisition, through a merger, of Massey by Alpha. Undeterred, they attempted to reframe their derivative claims as direct claims, arguing that the claims survived the merger on a theory of “inseparable fraud.” In determining whether claims are direct or derivative, the court asks who suffered the harm and who would benefit from the remedy – here, the court found that it was not the stockholders individually who were injured but the corporation, and that the corporation, and not plaintiffs, would be the beneficiary of any decision in favor of plaintiffs. Thus, the court determined that the claims were derivative and that therefore only Alpha, as Massey’s sole shareholder upon the closing of the merger, had standing to pursue them.
The court also agreed with Cleary’s argument that dismissal of the claims was the equitable result, because Alpha acquired the derivative claims against the former Massey directors and officers as a good faith purchaser for value in the merger. Therefore, carving that asset out of the transaction now would materially change the terms of the merger. In reaching both of these conclusions, the court looked to findings made in an earlier ruling denying a preliminary injunction that Cleary won on behalf of Alpha in 2011.