Motion to dismiss lawsuit against Justice-owned companies denied
CHARLESTON — An effort by several companies owned by Gov. Jim Justice to dismiss a lawsuit alleging they owe a Canadian steel manufacturer millions of dollars was denied by a federal judge Monday.
U.S. District Judge Analisa Torres denied the motion to dismiss filed by attorneys for Nevada Holdings Inc., previously known as Southern Coal Sales Corp., in a lawsuit brought in the U.S. District Court for Southern New York by Essar Steel Algoma Inc.
Southern Coal Sales, one of more than 100 companies owned by Justice and managed by his son, Jay Justice, filed the motion to dismiss on June 24, 2019, after Algoma filed a second amended complaint adding 12 other Justice-owned companies to the lawsuit alleging that these companies were alter egos for Southern Coal Sales.
“(Algoma) claims that Southern Coal is an undercapitalized sister entity to, or a subsidiary of, the Justice parties, ‘which exert complete dominion and control over and therefore operate over Southern Coal as its instrumentalities and alter egos,'” Torres wrote in her decision. “According to (Algoma), Southern Coal was undercapitalized in part because the Justice parties ‘siphon[ed] money from Southern Coal,’ leaving it ‘unable to perform its contractual obligations,’ and rendering Southern Coal “‘judgment-proof.'”
Algoma, the second largest steel manufacturer in Canada, filed suit against Southern Coal in U.S. Bankruptcy Court for the District of Vermont, then the case was transferred to the U.S. District Court in New York on Sept. 19, 2017. Algoma is asking for a judgment of $6.7 million.
The company alleges Southern Coal Sales violated an agreement to supply 780,000 tons of coal, amounting to more than half of Algoma’s annual needs.
Instead, Algoma claims Southern Coal Sales only supplied 31 percent of the coal agreed to in the 2015 contract.
In its amended complaint, Algoma accused the Justice-owned companies of functioning as one, sharing assets, resources, employees, e-mail addresses and moving money from one company to another.
Justice’s companies attempted to argue that the court had no personal jurisdiction over the additional Justice-owned companies. Torres ruled that since the entities did appear to be alter egos of Southern Coal Sales, the court did indeed have jurisdiction. Torres said the actions by Justice’s companies in relation to the deal with Algoma demonstrate that the companies are acting as one.
“For example, (Algoma) alleges that Bluestone Resources Inc. issued plaintiff invoices in 2016 for coal that was delivered under plaintiff’s agreement with Southern Coal,” Torres wrote. “One invoice directed (Algoma) to remit payment to a bank account in the name of ‘Bluestone Energy Sales Corp.,’ one of the Justice parties. The business address listed on the invoice for Bluestone Energy Sales Corp. is the same as the principal place of business of Southern Coal. Moreover, (Algoma) alleges that the information systems used by Southern Coal and the Justice parties is the same, as Southern Coal employees had Bluestone and Justice Corp. e-mail addresses and email signatures.”
“These facts sufficiently allege that the Justice parties did not treat Southern Coal ‘as a distinct economic entity,'” Torres said.
Justice’s companies, in previous filings, have argued that the use of multiple companies is common in the coal industry and that Southern Coal Sales would purchase coal and services from the other Justice-owned companies. Torres didn’t buy the explanation.
“The court is not persuaded,” Torres wrote. “That other entities in the coal industry intertwine corporate structures does not mean that such entities are not operating as alter egos or that the Justice parties are not operating as alter egos here. Moreover, the Justice parties have not provided legal authority to justify their ‘everyone is doing it’ defense to alter ego liability.”
Torres scheduled a case management conference between Algoma and Southern Coal Sales at 11 a.m. on June 8.
Justice has been accused of using his companies as alter egos of each other before.
Last summer, Bluestone Resources agreed to pay a $1.23 million civil contempt sanction in installments against Justice Energy Co.
The deal came about after the U.S. Attorney’s Office for the Southern District of West Virginia agreed to withdraw a motion asking a federal court to allow it to pierce the corporate veil and go directly after the Justices for the full amount. At the time, U.S. Attorney Mike Stuart called Justice Energy a “shell.”
“While (Justice Energy) may be a corporation, it is, in reality, an alter ego and shell controlled by the Justices through their other entities and has no real separate existence under the law,” Stuart said.
A request for comment from a spokesperson for Justice’s companies was not returned.