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COALFIELD CONTRACTS MINING AT WHAT PRICE ? MASSEY


Publication: THE CHARLESTON GAZETTE
Published: Tuesday, November 30, 1993
Page: P1A
Byline: Paul Nyden

Since 1978, A.T. Massey Coal Co. has created more than 110 subsidiaries and hired nearly 500 independent contractors to mine its coal. Most of the contractors eventually went out of business or bankrupt.

Former company President E. Morgan Massey believed a decentralized coal company is the most productive.

Critics say the maze of contractors helped A.T. Massey avoid paying millions of dollars in wages, health benefits, pensions, environmental cleanup costs and taxes. The maze baffled government agencies that enforce environmental laws and collect taxes.

"A.T. Massey, Island Creek Coal and Pittston Coal have been the most aggressive and sophisticated companies in the use of contractors," said L. Thomas Galloway, a Washington, D.C., environmental lawyer. "These contractors left behind significant environmental problems, including unreclaimed mines, unpaid environmental fines and delinquent federal reclamation fees." Jerry Eyster, Massey's vice president for corporate development, said the company has changed. Eyster said E. Morgan Massey's policies were damaging the company before he retired in March 1991 Massey spelled out his philosophy in "The Massey Coal Company Doctrine," a confidential document first circulated to his top executives in 1982.

"We want to own and operate high coal mines or mines with better mining conditions, quality and proximity to market. We do not want to abandon all coal that does not have these characteristics," the document stated.

The Massey Doctrine defined three types of coal reserves. The company should "own and operate with company labor and management" high quality coal in thick seams with good mining conditions.

Less attractive reserves should be mined by contractors or controlled through "a financial relationship with the producer," Massey wrote. "In coal ... of average height or mining conditions, we want to have an interest which controls the marketing of such coal.

We are willing to settle for a smaller but reasonably assured profit, but avoid the mining risk." Massey put thin seams with difficult mining conditions into a third category.

"We desire to have only a brokerage relationship with ... no long-term contractual or financial arrangement. This is the coal that, in a weak market, will be available at the lower price.

This is the coal that we should buy or market ourselves rather than have it compete with us," he wrote.

A.T. Massey Coal recently paid some debts its subsidiaries and contractors owed: Two months ago, it paid $27.5 million to the United Mine Workers Health and Retirement Funds.

Two years ago, Massey paid more than $500,000 in environmental fines for five West Virginia contractors.

Eyster said A.T. Massey now uses contractors more sparingly.

The company operates 22 mines itself and hires contractors at 28 others.

"In the past, we leaned in the direction of maintaining independence of contractors. Unfortunately, there were failures and people did not meet all the obligations they had," Eyster said "In some cases, we thought they were paying bills and they weren't. They had the money, but it went somewhere else. We have tightened up our practices," he said.

But Massey still faces several lawsuits from former contractors.

The company also faces possible charges of bankruptcy fraud after allegedly paying $225,000 to one bankrupt contractor without approval from federal officials.

Critics say Massey used such contractors to dump union workers, qualify for special tax credits, and avoid paying wages and Workers' Compensation premiums.

Union troubles A.T. Massey has battled the UMW for years: In 1981, Massey beat organizing drives at Elk Run Coal in Boone County and Marrowbone Development in Mingo County.

In 1985, Massey's Rawl Sales & Processing secured contract concessions after a bitter 15-month strike.

A labor dispute flared in August 1989 in Logan County when A.T. Massey subsidiary Rum Creek Coal Sales Inc. hired Con-Serv Inc., a non-union contractor, to operate a coal tipple on Rum Creek.

Con-Serv fired nine men who worked for Berachah Mining Inc., a union contractor that ran the tipple before it went bankrupt in July 1989 When UMW members began picketing on Aug. 14, Massey hired Mate Creek Security and Mate Creek Trucking. Joby Fields, a longtime Massey contractor, headed both companies. Trucks from Mate Creek, equipped with heavy steel blades, often drove through picket lines on the hollow.

Brack Green, one of the Mate Creek guards, later filed an affidavit in federal court stating Mate Creek actually planned and provoked confrontations with union pickets.

Don Blankenship, A.T. Massey's current president, has called Green's charges "wild, unsubstantiated, false allegations." "We emphatically deny them. We do not, and never will, encourage or condone the use of violence or criminal activity." Based in part on Green's statement, the National Labor Relations Board filed a complaint in June 1990 charging Massey affiliates and contractors with unfair labor practices, including "assaulting picketing employees by discharging firearms at them and by seriously wounding and injuring one of them." According to Green's affidavit, Mate Creek guards fired toward the UMW picket shack the first day they arrived on Rum Creek _ Aug. 18.

"If it came out that there had been shooting, they needed a reason to have done it. To prove that the pickets shot at them, Bobby Chafin took a shotgun and shot the tool truck in the windshield and the door panel maybe three times and Rush Cline also shot the company's tool truck in the windshield. They blamed this on the pickets." Ricky Starr, a Mate Creek officer, helped plan the next day's confrontation, Green's affidavit stated.

"Starr told us that Rum Creek Coal Sales President Richard Zigmond had said that the primary purpose that day was to get all the violence on film so the federal marshals would be brought in so they could get an injunction," Green stated.

On the morning of Aug. 19, Mate Creek guards shot toward union pickets and seriously wounded Roy Blankenship, a UMW local vice president. Blankenship still has a lawsuit pending against A.T. Massey, seeking damages to compensate for his injuries.

Mate Creek allegedly stockpiled high-powered weapons on Rum Creek. "There were many guns and ammunition," Green said.

"After the shooting, there was a Uzi brought up to the mine site. There was an AK-47 at the prep plant. There was also a very big gun on a tripod - probably an M-60 - in the guard shack at the tipple." Several Mate Creek guards were indicted on charges of attempted murder in the shooting incidents. But the state Supreme Court dismissed the indictments in June 1990 because of a flaw in the grand jury process. The guards were not indicted again.

Tax credits|M State legislators passed the Capital Company Act in 1986, hoping to stimulate new business. Investors received tax write-offs of 50 cents for every dollar invested in a venture capital company.

Coal and timber companies claimed most of the credits during the first five years.

A.T. Massey and its affiliates invested $14.5 million, more than anyone else, and qualified for $7.25 million in tax breaks.

But Massey's money did not all go to nurture risky new ventures, as state lawmakers envisioned. As much as $4 million went to four of Massey's own contractors who mined coal in Boone and Mingo counties Most other coal companies - such as Arch Mineral Corp., BethEnergy Corp. or Consolidation Coal Co. - did not use capital credits to finance their contractors.

Massey did not violate the 1986 law, which simply prohibited investors from claiming tax credits for lending money to companies in which they owned a majority of stock.

In 1991, the state Tax Department released a report criticizing capital companies "operated exclusively for the benefit" of investors.

"The credit fails in such cases to increase the availability of venture capital funds and instead acts like a grant-in-aid program for wealthy investors," the report stated. "Most other states with similar programs strictly prohibit such investments." State legislators quickly amended the act to prevent future investments similar those Massey made.

Wages and premiums|M Soho Coal Co. is one of several contractors that filed suit charging that Massey cheated them out of payments for coal they mined.

Between 1985 and 1989, Soho managed eight mines for Royalty Smokeless Coal Co. and Wyomac Coal Co., Massey subsidiaries, in Wyoming and McDowell counties.

In December 1988, Soho sued Massey, alleging it lost $650,000 because Massey "rounded the selling price to the lowest dollar figure." If coal prices fell between $25 and $25.99 a ton, for example, Soho got $25.

The suit also charged payments "were based on estimates which Soho believes were much less than the actual railroad weights" of coal produced." Massey also used Soho to resolve labor problems, the lawsuit charged, never telling Soho of its "intent to terminate said agreements at such time as Soho succeeded in resolving said labor problems." When Soho lost its contracts, it laid off 80 union employees who once worked directly for Massey. Soho, not Massey, owed the men and the UMW benefits funds more than $1.2 million.

Soho's lawsuit asks for $47 million in damages. The trial is scheduled to begin in McDowell County in March.

Eyster and other Massey officials refuse to comment on pending lawsuits.

Facing financial pressure, Soho, in turn, squeezed its subcontractors. The Princeton Coal Group, one Soho subcontractor, created and shut down five mining companies between 1987 and 1990.

Princeton Coal declared bankruptcy in 1991.

Robert and Donna Charles, who owned Princeton Coal, avoided paying workers all their wages and health benefits.

In early 1987, for example, another Charles company, Noble Coal, mined $50,000 worth of coal from Banacek No. 2 mine in McDowell County. Noble worked its men for four weeks, paid them nothing, then shut down.

A few days later, R&B Mining Inc., another company Charles formed, reopened the mine and rehired the men. R&B operated until December, but never paid any state taxes or royalties to the UMW's health and pension funds.

In January, after R&B went out of business, Bern Fuel Inc., yet another company Charles formed, took over and mined coal until it ran out in June.

Charles and a business partner then transferred their assets to a fourth company and started all over again at another mine.

U.S. District Judge Elizabeth Hallanan ruled Princeton Coal was operating a corporate scam. In June 1991, Hallanan ruled the company officers were personally responsible for $1.2 million in debts to the UMW funds.

When Princeton Coal filed for bankruptcy, it also owed the Workers' Compensation Fund $31000.

"When companies like Princeton Coal don't pay us, that means other industries pay for them," said John Kozak, the compensation fund's top lawyer. "It is a hidden cost of doing business." Next: Massey and Omar Mining

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