In re Massey Energy Co. Sec. Litig., Civil Action No. 5:10-0689

In re MASSEY ENERGY CO. SECURITIES LITIGATION

Civil Action No. 5:10-0689

UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF WEST VIRGINIA BECKLEY DIVISION

ENTER: September 28, 2011

MEMORANDUM OPINION AND ORDER

This securities litigation was initiated in the wake of the April 5, 2010, explosion at Massey's Upper Big Branch [UBB] mine in which twenty-nine coal miners died. Pending are the Plaintiffs' February 16, 2011, Motion for Partial Lift of PSLRA [Private Securities Litigation Reform Act] Discovery Stay (Document No. 76.) and the United States' March 3, 2011, Motion to Intervene and to Stay Discovery to prevent interference with its investigations and prosecution (Document No. 79.).¹ Respecting the United States' Motion to Stay Discovery, Plaintiffs and the United States have reached an agreement and have submitted a Proposed Order Granting Plaintiffs' Motion to Partially Lift the PSLRA Discovery Stay and the United States' Motion to Stay Discovery except as provided in the Proposed Order. (Document No. 92-1.)² The District Court has referred these Motions to theundersigned for disposition (Document Nos. 82 and 89.) Having examined the Motions and the parties' Responses, Replies and Objections, the undersigned has determined that Plaintiffs' Motion for Partial Lift of PSLRA Discovery Stay (Document No. 76.) should be granted and the Proposed Order Granting Plaintiffs' Motion to Partially Lift the PLSRA Discovery Stay (Document No. 92-1.) should be entered.

BACKGROUND

In requesting a partial lift of the PSLRA discovery stay, Plaintiffs state that they "seek the production of a particular, well-defined universe of documents, namely, those documents that Defendants have produced, or will produce, in the numerous pending governmental investigations - both criminal and civil - and private litigations that are closely related to the allegations underlying this Action." (Document No. 77, p. 3.) Plaintiffs assert that "the limited relief requested herein is necessary to ensure that Plaintiffs are not prejudiced by being the only party, amid the multitude of others similarly situated, excluded from access to relevant sources of evidence regarding the circumstances that gave rise to this Action; and, the issuance of preservation subpoenas will ensure that critical evidence is not lost or destroyed prior to commencement of discovery in this Action." (Id., p. 5.) Plaintiffs identify federal criminal and State administrative investigations, a Delaware derivative action and contempt and injunction proceedings in West Virginia State Courts alleging that Massey has produced documents in those actions. (Id., pp. 6 - 9.) Citing 15 U.S.C. § 78u-4(b)(3)(B) as providing the standard underlying their Motion, i.e., "thatparticularized discovery is necessary to preserve evidence or to prevent undue prejudice to that party" (Id., p. 9.), Plaintiffs assert that their request is sufficiently particularized because they "are requesting discovery relating to an identifiable universe of documents - i.e., those documents already produced, or about to be produced, by Massey in the several government investigations and private actions described above, none of which were, or are, subject to the PSLRA discovery stay." (Id., pp. 10 - 11.) Plaintiffs further assert that the burden upon Defendants of producing the requested documents is "close to nil" because Defendants have already compiled the documents and produced them in the other matters (Id., pp. 11 - 12.) whereas (1) Plaintiffs will experience undue prejudice as this securities class action is stalled while the other investigations and actions proceed essentially on the basis of documents relevant to this action (Id., p. 13.) and (2) lifting the statutory stay of discovery will not be contrary to the purpose of the statute to discourage frivolous securities litigation because "[t]he investigations by numerous government departments, all relating to allegations in the Complaint, offer assurance that Plaintiffs' allegations are not frivolous." (Id., p. 14.) Finally, Plaintiffs contend that the stay of discovery should be lifted to allow their issuance of preservation subpoenas because, as the investigations and other actions proceeded and Massey with its complicated corporate structure merged with Alpha Natural Resources as it did on June 1, 2011, the likelihood existed that documents relevant to this action might be unknowingly or intentionally destroyed. (Id., p. 14 - 18.) Plaintiffs submit the Declaration of Joel H. Bernstein in support of their Motion. (Document No. 78.) Mr. Bernstein attaches as Exhibits to his Declaration copies of press releases, articles and Court Orders. Mr. Berstein also attaches a copy of a document entitled "Schedule A" listing the documents which the Plaintiffs are requesting that Massey produce (Exhibit15.)³ and categories of documents which Plaintiffs request to be identified in document preservation subpoenas (Exhibit 19.).

On March 7, 2011, Don L. Blankenship, Baxter F. Phillips, Jr., Eric B. Tolbert and J. Christopher Adkins and Massey Energy Company and the Outside Director Defendants filed Memoranda of Law in opposition to Plaintiffs' Motion for Partial Lift of the PSLRA Stay. (Document Nos. 80 and 81.)⁴ Defendants contend that Plaintiffs have not demonstrated their proposed discovery is particularized and necessary to preserve evidence or prevent undue prejudice. (Document No. 80, p. 8.) Defendants state that "there has been no conclusion by any court, government agency, or any other investigating authority whatsoever that Massey Energy or any of the directors or officers named in this action committed fraud or any other actionable wrong. In fact Massey Energy is not being investigated by the SEC at all or by any of the government agencies identified by Plaintiffs for securities fraud." (Id.) Citing In re Fannie Mae Securities Litigation, 362 F.Supp.2d 37, 39 (D.D.C. 2005), and In re American Funds Securities Litigation, 493 F.Supp.2d 1103, 1107 (C.D.Cal. 2007), Defendants assert that Plaintiffs' discovery request is not particularizedbecause the requirement that document requests be particularized did not apply as documents were produced in conjunction with criminal and administrative investigations and other litigation and "Plaintiff make no effort to specify exactly what types of documents they seek in making the request or to show how the documents relate to their claims." (Id., p. 12.) Next, Defendants contend that Plaintiffs claim that documents will be destroyed is speculative and in any event the documents which they request are in the hands of the investigating government agencies and therefore their assertion that the stay of discovery should be lifted to preserve evidence is without merit. (Id., pp. 13 - 15.) Defendants further argue that Plaintiffs have failed to demonstrate that exceptional circumstances exist requiring the lifting of the stay of discovery for particularized discovery to preserve evidence or prevent undue prejudice. Citing In re WorldCom Securities Litigation, 234 F.Supp.2d 301 (S.D.N.Y. 2002), and In re Royal Ahold N.V. Securities and ERISA Litigation, 220 F.R.D. 246 (D.Md. 2004), and relying upon the Court's decision in Sisk v. Guidant Corporation, 2007 WL 1035090 (S.D.Ind.), Defendants urge that Courts generally have found circumstances such as settlement negotiations and settlements with third parties, bankruptcy proceedings and divestitures of assets to Plaintiffs' disadvantage while motions to dismiss are pending exceptional and therefore reasons for lifting the stay of discovery. (Id., p. 16 - 19.) Defendants assert that none of these circumstances exist in this matter and therefore Plaintiff cannot be found to experience undue prejudice if the stay of discovery is not lifted. (Id., pp. 20 - 22.) Finally, Defendants contend that Congress did not indicate that the burden upon Defendants in producing the requested documents if the stay of discovery is lifted is relevant and Plaintiffs' assertion that its claims are not frivolous is not be a basis for disregarding the intention of Congress in requiring a stay of discovery while motions to dismiss are pending.

On April 1, 2011, Plaintiffs filed a Reply Memorandum in Support of their Motion for Partial Lift of the PSLRA Discovery Stay and in Opposition to the United States' Combined Motion to Intervene and to Stay Discovery. (Document No. 90.) Plaintiffs state that they are only requesting that the stay of discovery be lifted to allow the production "of internal documents that the Company has already disclosed to other litigants." (Id., p. 5.) They are not requesting the production of the Government's work product or documents produced to investigators or prosecutors. (Id., pp. 5 - 6.) Plaintiffs assert that in view of the charges now pending in United States v. Stover, Criminal No. 5:11-0038, that Mr. Stover, allegedly the head of security of Performance Coal Company, Inc., a Massey subsidiary which operated the UBB mine, ordered the destruction of documents, the lifting of the stay of discovery is necessary to the preservation of evidence.⁵ (Id., pp. 6 - 7.) Plaintiffs further assert that documents may be destroyed as Alpha Natural Resources acquires Massey (Id., pp. 7, 15 - 17.) and they are at a disadvantage by operation of the stay of discovery while others proceed in other matters who are not subject to it as they are "unable to pursue sources of evidence before they grow cold, or to coordinate discovery efforts in a manner that is fair to litigants in all proceedings, and works the least amount of inconvenience to witnesses and third parties in possession of relevant evidence." (Id., pp. 7 - 8.) Plaintiffs contend that the allegations and claimscontained in their Complaint are "sufficient . . . to meet the PSLRA's pleading hurdles" and they are not requesting that the stay of discovery be lifted in order that they may obtain information to...