West Virginia Business Litigation Lawyer & Attorney : Law Office of Jeffrey V. Mehalic : Charleston, Huntington, Parkersburg

    In The New York Times yesterday, Mary Williams Walsh wrote about the situation faced by thousands of employees of U.S. Sugar, who participated in an ESOP (employee stock ownership plan) in 1983, which traded their participation in a pension plan for ownership of the company’s stock.  But as more employees reach retirement, they have discovered that their shares are not as valuable as they expected. 

    U.S. Sugar's shares are not traded publicly, so their value is determined by what the company is willing to pay to redeem them.  Then, once an employee cashes in his or her shares, the shares are retired, which critics of the plan allege makes it easier for insider groups to maintain control, because the pool of shares is getting smaller.

    According to the article, the company’s board turned down two offers by the Lawrence Group, a large agribusiness concern from Sikeston, Missouri,  to buy the shares for $293 each, even though the company was paying employees from $194 to $205 per share at the time.  The employees claim that they were not told about the offers or given the chance to sell their shares at the higher price. 

    To make matters worse, U.S. Sugar hired an outside appraisal firm to evaluate the Lawrence Group’s second offer, which was made in early 2007.  The appraiser determined that U.S. Sugar’s break-up value was $2.5 billion, or $1,273 per share.  Based on that estimate, U.S. Sugar rejected the Lawrence Group’s bid as inadequate, but did not increase the purchase price offered to employees.

    The employees have filed a class action, Johnson v. White, Civil Action No. 08-CV-80101 (M.D. Fla.), which is described on this Website set up by their counsel, Colson Hicks Eidson. The site has most of the court filings from PACER in PDF format. 

    The most recent filing is an amended complaint filed on May 2, 2008, which alleges claims for breach of fiduciary duty against the company’s directors and officers and for violations of ERISA and equitable relief under ERISA Section 502(a)(3).  

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    Today, Chesapeake announced that it is canceling plans to build a $35 million regional headquarters in Charleston, and blamed the Supreme Court’s decision not to hear its appeal.   Here is George Hohmann's article about the decision in today's (Charleston) Daily Mail.

   Chesapeake issued this media statement today:

On Thursday May 22nd, the West Virginia State Supreme Court issued a unanimous (5-0) decision against hearing NiSource and Chesapeake's appeal in the Tawney case.  Chesapeake inherited the lawsuit when it purchased Columbia Natural Resources in 2005.

This decision was stunning, as it means we will not have the opportunity to challenge the verdict issued in Roane County in January, 2007.  While we hold a less significant amount of the liability in the verdict, we do believe it sends a profoundly negative message about the business climate in the state.  The reality of this decision is that nobody in West Virginia, similarly situated, has a guaranteed right of appeal in the judicial system.  Chesapeake plans to join NiSource in appealing the case to the U.S. Supreme Court.

As a result, Chesapeake Energy has made the decision to cancel plans to build a new regional headquarters building in Charleston, WV.

We remain committed to our people and our operations in West Virginia and the Appalachian Basin. Chesapeake's Eastern Division will continue to be managed from Charleston, but we will do it from leased space.

--Scott Rotruck, Vice President -Corporate Development

    I have no doubt that Chesapeake is frustrated by the rejection of its appeal, but that was always a possibility.  Unlike federal district court, with its right of appeal, nearly all appeals from West Virginia state courts are discretionary. 

    Chesapeake’s reaction strikes me as a case where its assessment of the success of its appeal may have been based on considerations such as the amount of the verdict, its investment in the local economy, or the prominence of the defendants, and Chesapeake is dismayed that the Supreme Court did not agree with its view.

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   A few days ago, I wrote that the Circuit Court of Putnam County had approved three settlements in cases alleging medical malpractice by discredited surgeon John King, and had rejected the parties' requests to keep those settlements confidential.

    Last Thursday, the court approved and made public the terms of nine more settlements, but it appears unlikely that the terms of the settlements of the remaining 58 clients represented by Curry & Tolliver will be revealed.

    Because the parties are not asking the court to make a specific finding in those cases that the settlements are good faith settlements, its approval is not necessary, and those plaintiffs will voluntarily dismiss their claims against the settling defendants.  Here is the notice of presentation of stipulation for and order of dismissal presented by the Curry & Tolliver plaintiffs.

    These are the details of the nine settlements approved last week, as described by Paul J. Nyden in his article in Friday’s Charleston Gazette:

• Lisa and Stephen Coiner, $1.45 million for injuries to Lisa Coiner;

• Linda and Marvin Goodpaster, $1.32 million for injuries to Marvin Goodpaster, including $46,773 set aside for each of two children;

• John and Lisa Hansroth, $1.15 million in a settlement involving injuries from King's surgery on John "Andy" Hansroth, a Charleston Gazette reporter who died in March 2005.  The settlement included money for their three children;

• David and Zamba Holestin: $1.32 million for a failed spinal fusion operation to David Holestin, including $187,915 for one of the couple's two children who was alive at the time of the failed surgery;

• Matthew and April Murphy: $150,000 for injuries to one of their daughters during an operation King performed on her broken arm.  Their daughter suffered no permanent injuries;

• Katherine and Barry Rutledge, $2 million for King's failed treatment of Katherine Rutledge's minor foot problem, which later caused her legs to be amputated; and
  

• Carrie Ann and Mark Triplett, $730,000 for a flawed 2003 operation, which included $70,463 for each of their two children.

    In addition, the court approved two other settlements by King patients whose competency to enter into their settlements had been at issue.  In those settlements, Regina Bird received $2 million and Steven Dingess received $750,000. 

    I realize that the parties may have legitimate reasons for not wanting to disclose the terms of the remaining settlements, but I think that Putnam County Circuit Court Judge Spaulding is correct that the public has a right to know whether these were legitimate cases.  Under these circumstances (did King operate on any patient without committing malpractice?), the court should determine whether every settlement was made in good faith and if so, order the disclosure of its terms.  

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    Last week, the Supreme Court of Appeals of West Virginia rejected appeals in two widely-publicized cases.  In Estate of Garrison G. Tawney v. Columbia Natural Resources, LLC, No. 080482, Columbia and NiSource, Inc. appealed the jury’s verdict of $404,335,138, which included punitive damages of $ 270 million.  Here is my post about the verdict.

    In Tawney, which the Court rejected by a vote of 5-0, Justice Robin Davis recused herself because her husband is counsel for the plaintiffs, and Justice Brent Benjamin recused himself because his former firm represents some of the defendants.  Raleigh County Circuit Court Judge H. L. Kirkpatrick and Cabell County Circuit Court Judge Dan O’Hanlon were appointed in their places.

    In Wheeling-Pittsburgh Steel Corporation v. Central West Virginia Energy Company, Nos. 080182 and 080183, Central West Virginia and Massey Energy Company appealed the verdict of $219 million, resulting from the jury’s finding that the defendants breached their contract with Wheeling-Pittsburgh Steel Company and committed fraud.  That verdict included punitive damages of $100 million.  Here is my post about that verdict.

    In Wheeling-Pittsburgh, which the Court also rejected by a vote of 5-0, Chief Justice Elliott E. “Spike” Maynard recused himself because of his relationship with Massey chairman Don L. Blankenship, and retired Greenbrier County Circuit Court Judge Frank Jolliffe was appointed in his place. 

    At this point, the remedy for the defendants in both cases is to petition the Supreme Court of the United States for review.  According to Veronica Nett, writing in yesterday's Sunday Gazette-Mail, the defendants in Tawney intend to appeal on the grounds that the punitive damages were excessive.  But a two-to-one ("single digit") ratio of punitive damages to compensatory damages does not appear to be inherently excessive, according to State Farm Mut. Ins. Co. v. Campbell, 538 U.S. 408 (2003), 

    Massey is considering an appeal to the Supreme Court, according to the Associated Press' Tim Huber, but has not yet made a decision. 

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    You may have seen the print ads or TV commercials for LifeLock, Inc., which feature its president, Todd Davis, disclosing his Social Security number and guaranteeing its security, and offering a $1 million service guarantee if a subscriber’s identity is stolen or compromised.  But according to a lawsuit filed last week in the Circuit Court of Jackson County, West Virginia, not everyone is satisfied with LifeLock’s services.  Here is the complaint, courtesy of the plaintiff's counsel, Davis Paris of Marks & Klein, LLP.

    In Gerhold v. LifeLock, Inc., Civil Action No. 08-C-69 (May 12, 2008), the plaintiff alleges that LifeLock and Davis, who is also named as a defendant, engage in deceptive business practices and fraudulent advertising in having “induced nearly one million individuals, including Plaintiff and the Putative Class in the state of West Virginia, into subscribing to the identity theft protection services the company purportedly provides.”

    The plaintiff seeks to certify a class consisting of “All persons in the state of West Virginia who subscribed to LifeLock, between 2005 and the present, including former residents who resided in West Virginia at the time they subscribed to LifeLock’s services.”  The class is alleged to have more than 1,000 members.

    LifeLock is alleged to misrepresent the scope and effectiveness of its services, and to conceal the potential harm that its services could have on its subscribers' credit profiles by LifeLock's placing and renewing fraud alerts on those profiles.  LifeLock also fails to disclose that the credit reports it obtains for its subscribers are the free annual reports to which they would be entitled ordinarily, and that by LifeLock ordering the credit report, the subscriber is ineligible to order the report for 12 months.

    The complaint also deals with Davis’ disclosure of his own Social Security number, which apparently has not been as secure as Davis has claimed:

9.      While LifeLock has only publicly acknowledged that Davis’s identity was compromised on one (1) occasion, there are more than twenty (20) driver’s licenses that have been fraudulently obtained through the misappropriation of Davis’s personal information.

10.    Furthermore, a simple background check performed using Davis’s social security number reveals that his entire personal profile has been compromised to the extent that the birth date associated with his social security number is November 2, 1940, which would make Davis 67 years old.  This is clearly fraudulent information.

    The complaint alleges causes of action for violations of the West Virginia Consumer Credit and Protection Act for unfair or deceptive acts or practices and by a credit service organization, unconscionability, injunctive relief, and declaratory judgment.

    The lawsuit was the subject of a front-page story by Andrew Clevenger in the Sunday Gazette-Mail, which points out that Gerhold's counsel has filed similar class actions against LifeLock and Davis in New Jersey in March  and in Maryland in April.  For additional information, here are posts from, the Blogger News Network and from News Blaze.

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    The saga of Caperton v. A. T. Massey Coal Company, Inc. continues, following the Supreme Court of Appeals of West Virginia’s decision to reverse the jury’s verdict of $50 million against Massey.  Paul J. Nyden reported in yesterday’s Charleston Gazette that Caperton and his company, Harman Mining Corporation, have retained Theodore B. Olson of Gibson, Dunn & Crutcher, to represent them in an appeal before the Supreme Court of the United States.

    Olson served as Solicitor General from 2001 until 2004, but may be best known for arguing Bush v. Gore before the Supreme Court in 2000 on behalf of President Bush. 

    Olson will present Caperton and Harman’s petition for a writ of certiorari, which will likely focus on the make-up of the Supreme Court of Appeals and argue that Caperton and Harman did not have an impartial tribunal because of the participation of Justice Brent Benjamin, whose election in 2004 benefited from the involvement of  Massey Energy Company chairman Don Blankenship.

    Here is a quote from Olson in the Gazette article:

“A line needs to be drawn somewhere to prevent a judge from hearing cases involving a person who has made massive campaign contributions to benefit the judge. We certainly believe that, in this case, acting Chief Justice Benjamin crossed that line.”

    Justice Benjamin became acting Chief Justice when Chief Justice Elliott E. “Spike” Maynard recused himself after photographs were released in January showing him with Blankenship in Monte Carlo in the summer of 2006, while Massey’s appeal was pending before the Supreme Court of Appeals.

    Although Nyden did not mention any time frame for the presentation of the petition, Rule 13 of the Rules of the Supreme Court of the United States provides that a petition for a writ of certiorari from a judgment of a state court of last resort must be filed within 90 days after entry of the judgment.  The Supreme Court of Appeals’ decision was issued on April 3, which makes the petition due by July 2.

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    In March, I wrote that most of the plaintiffs in the medical malpractice actions against discredited surgeon John King had reached settlements with several of the defendants.  Last week, three plaintiffs had their settlements approved by the Circuit Court of Putnam County, West Virginia.  What I find interesting is that Judge O. C. Spaulding refused the parties’ request to keep the amounts of the settlements confidential.   

    Paul J. Nyden wrote about the hearing in last Wednesday’s Charleston Gazette.  In denying the parties' request for confidentiality, Judge Spaulding  noted the publicity and attention that the cases had generated state-wide and nationally, and said that, “the public has a right to know, were these legitimate cases?” 

    You can answer that question for yourself.  These are the settlements that were approved, according to the article:

• $1,083,384 for the estate of Cora Linville, who died three years after her back surgery resulted in multiple infections;
  

• $923,585 for the estate of John Higgenbotham, who was 91 when he died.  Higgenbotham never woke up after King performed a massive spinal operation on his back; and 
  

• $423,585 for the estate of Leatha Johnson, who died less than three months after King performed the first of four surgeries to repair fractures and counter infections.  
  

    Court approval for these settlements was necessary because the Supreme Court of Appeals of West Virginia held in Estate of Postlewait ex rel. Postlewait v. Ohio Valley Medical Center, Inc., 591 S.E.2d 226 (W.Va. 2003), that West Virginia Code § 55-7-7 “clearly contemplates and requires that all compromises of wrongful death actions be submitted to the circuit court for approval.”  

    Another hearing is scheduled for May 22 for court approval of nine settlements of plaintiffs who were minors when King performed surgery on them.  

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    The Supreme Court of Appeals of West Virginia issued a decision in March that didn’t attract a lot of attention, which may be due to the rather straightforward procedural issues presented by the appeal.  But the facts in Hoover v. Moran, 2008 WL 696879 (March 14, 2008), make the decision worth studying.

    Johnnie Hoover worked as a mechanic, welder, and equipment operator for Peter Moran’s company, Princess Beverly Coal Company, from 1984 until 2000.  At various points from the mid-1980s until the early 1990s, Hoover alleged that he lent Moran money to cover the payroll and pay other debts.

    In February 1985, Hoover loaned Moran $20,000 to be repaid within 60 days.  Before the repayment date, Hoover alleged that Moran asked for more time to repay him and agreed, as consideration for the extension, to pay Hoover 10% of the profits from the sale of the company if it were ever sold.  The parties did not put the agreement in writing and Hover was repaid at some point.

    In 1997, Hoover and Moran attempted to negotiate Hoover’s claim of an interest in the proceeds from the company’s sale, but they could not reach an agreement.  Two years later, Princess Beverly was sold for $11.6 million.  Hoover sued Moran and the company in 2002, alleging breach of the oral agreement.

    The defendants moved to dismiss for failure to state a claim.  Before the circuit court could rule on the motion, however, Princess Beverly filed for bankruptcy in November 2002, and received an automatic stay against Hoover’s litigation.  Subsequently the parties voluntarily dismissed Princess Beverly from the case.  Then, the circuit court, on its own motion, dismissed the case against Moran due to inactivity for more than one year.

    Hoover moved to reinstate the case, and the circuit court granted his motion in August 2006.  The parties supplemented their briefs on Moran’s pending Rule 12(b)(6) motion.  Moran argued that the action did not state a claim against him in his personal capacity, and that in order to be enforceable, the alleged agreement between him and Hoover had to be in writing.                   

    Following a hearing on the motion, the circuit court granted Moran’s motion to dismiss on the grounds the complaint failed to state a claim against him in his personal capacity.  Hoover’s motion for reconsideration was denied, and he prosecuted an appeal from the circuit court’s order.  Moran also prosecuted a cross-appeal from the order reinstating the action.

    As to the dismissal of the complaint for failure to state a claim against Moran as an individual, the Supreme Court, in a per curiam opinion, found that Hoover’s allegations against Moran and Princess Beverly, although somewhat ambiguous, “sufficiently placed Mr. Moran on notice that he was being sued in his individual capacity[,]”  and reversed the dismissal on that basis. 

    The Court also rejected Moran’s argument that the action was barred because the statute of frauds contained in the Uniform Commercial Code required the agreement to be in writing, finding that the doctrine of promissory estoppel applied to Hoover’s claim.  Hoover alleged that after he and Moran reached their agreement that Moran would pay Hoover 10% of the profits from the sale of Princess Beverly, Moran borrowed an additional $31,000 from Hoover, which Hoover was willing to lend because of the agreement:

“To the extent that Mr. Hoover’s allegations are true, an injustice would occur were we to allow the statute of frauds contained in W. Va. Code §46-8-319 to defeat his cause of action.  We believe that under the doctrine of promissory estoppel, Mr. Hoover should have his day in court notwithstanding the possible application of the statute of frauds writing requirement of W. Va. Code §46-8-319.”

    Moran did not fare any better in his appeal of the reinstatement of the action.  The circuit court had reinstated the action because neither Hoover nor his counsel received notice of the dismissal as required by Dimon v. Mansy, 479 S.E.2d 339 (W.Va. 1996), which Moran did not dispute.   Absent such notice, which is intended to give the parties an opportunity to be heard before the case is actually dismissed, the Supreme Court held that the reinstatement of the case was appropriate.

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    In an order entered on Monday, the Supreme Court of the United States rejected Camden-Clark Memorial Hospital’s petition for a writ of certiorari from the Supreme Court of Appeals of West Virginia’s decision not to review the jury’s verdict of $6.5 million in a medical malpractice action filed against the hospital.  Camden-Clark Memorial Hospital v. Boggs, Bernard, No. 07-812.  Here are my posts from last September about the hospital’s petition for appeal and the Supreme Court of Appeals’ refusal thereof. 

    Reporter Andrew Clevenger has an article about the case in today’s Charleston (West Virginia) Gazette, in which he mentions that a “countersuit” filed by the hospital against Bernard Boggs, alleging that Boggs’ original lawsuit was frivolous, is still pending.  It seems like a verdict for $6.5 million in the underlying action, plus sanctions in the amount of $1.3 million, would prove that Boggs' lawsuit had merit.  

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