Jim Justice gestures during an interview in June 2016 at his Greenbrier Resort hotel property in White Sulphur Springs, W.Va. Now the state's governor, Justice owns more than 100 companies across an array of sectors and is frequently the target of litigation for failing to pay his debts.

Source: Associated Press

As the governor of West Virginia, Jim Justice leads the second-largest coal producing state in the nation. As a billionaire coal executive, Justice led companies that had difficulty keeping up with the vast regulatory, accounting and legal issues accompanying the business of mining coal.

An extensive review of court documents found multiple cases of Justice family companies allegedly failing to fulfill contractual obligations, missing debt payments, and not complying with court orders both before and after the governor took office in 2017. While the Justice companies often dispute the merits of the legal actions brought against them, financial pressure brought on by distressed coal markets and organizational shortcomings also seems to have affected their ability to pay their debts in a timely manner.

The Justice family companies say their "very high profile" — stemming from the perception of the family's lofty net worth, ownership of the Greenbrier Resort and now Justice's standing as governor — makes their corporations "huge targets" for litigation. The governor maintains ownership of his companies since taking office, although he stepped down from any officer or director roles while other family members took the lead of most of his other organizations.

In a statement to S&P Global Market Intelligence through Getty Law Group PLLC attorney Richard Getty, the companies acknowledged that "sometimes bills got paid late." However, the statement said, they also did "the very honorable and ethical thing" by continuing to pay debts and obligations, keeping employee benefits intact and weathering the storm that swept many coal companies into bankruptcy in recent years.

"There have been cash flow issues," the statement said. "These issues were created by the many years of depressed coal pricing coupled with Obama's war on coal."

While other large coal companies "stiffed banks and vendors with tens of billions of dollars of debt" in bankruptcy reorganizations, the companies wrote, it was important to the Justice family to avoid the pain that a Chapter 11 bankruptcy could mean for customers, vendors and employees.

For some observers, the companies' legal struggles appear to be in contrast with the billionaire governor's ownership stakes in more than 100 companies across sectors including coal mining, agriculture and hospitality. Justice, with a net worth of about $1.5 billion as of April 11, according to Forbes, is the only billionaire resident of West Virginia and frequently makes headlines for his philanthropic endeavors.

Despite Justice's personal net worth, several entities in the family's broad and decentralized network of companies have found themselves in legal tussles over issues ranging from unpaid debt to failing to fulfill regulatory obligations.

The payment history on penalties accrued by Justice subsidiary Kentucky Fuel Corp. was "abysmal," a 2014 order from the Federal Mine Safety and Health Review Commission states. The secretary of labor and the Mine Safety and Health Administration accused multiple companies owned by Justice of using the "same ineffective and unreliable system by which to process penalty assessments" and exhibiting "an attitude of carelessness, indifference, and outright evasion" to penalty assessments during a 2009 dispute before the same commission.

Justice-owned companies are responsible for $4.3 million in delinquent debt for federal mine safety violations, according to an April 5 West Virginia Public Broadcasting's Ohio Valley ReSource investigation into MSHA data. That debt is the largest of any entity in the U.S. mining industry and has grown since Justice's 2016 bid for governor when he pledged to take care of the debt, according to the investigation. Justice companies accounted for about 10% of the delinquent debt on MSHA's records as of Dec. 5, 2018, the regional journalism collaborative reported, even though Justice mines produced just a little more than one-tenth of 1 percent of the tons of coal produced at all U.S. coal mines in 2018.

Kentucky state officials warned a federal district judge in an August 2018 court filing that Justice companies will "habitually blame others" for missed debts and breached agreements. The officials asked the court to order Justice companies to pay a $3 million penalty after failing to honor a 2014 deal to fix hundreds of mining reclamation violations in Kentucky, the Lexington Herald-Leader reported.

"It's very odd, the fact they've made commitments under court supervision and haven't fulfilled them," Patrick McGinley, a West Virginia University law professor who specializes in natural resource law, said in an interview. "This type of activity among these companies has been ongoing for a considerable time. At least in my view, it's surprising the hammer hasn't come down on them earlier."

A limited ability to pay

The federal government and other entities that reviewed financial information from Justice's privately held companies indicated that there might be a mismatch between assets and the Justice companies' potential liabilities.

U.S. Attorney Michael Stuart recently filed a motion to intervene for help collecting a $1.2 million court-ordered sanction against one Justice company for failing to make monthly payments on less than $150,000 debt after he was told the company might not have financial resources to pay. The Justice family companies confirmed in a March 26 statement that the Justice Energy entity, which is a small part of the family's coal holdings that has largely exhausted the mine life of the surface mining permit it holds, is not financially able to pay the sanction on its own.

"We continue to always operate all of our businesses as stand-alone entities," the company wrote. "We expect those businesses ... to financially succeed on their own."

In certain cases, U.S. marshals were authorized to seize assets of certain Justice company bank accounts, and they reported finding zero balances. In one ongoing case in West Virginia, a U.S. District Court judge on Jan. 2 appointed a magistrate judge within the court to facilitate collecting the debt. In another legal development in West Virginia on that same day, U.S. District Judge Irene Berger warned a Justice family company that continuing to flout court orders is "not a strategy likely to engender positive results" in an order related not paying a $1.2 million court sanction.

President Donald Trump, left, reaches out to shake hands with West Virginia Gov. Jim Justice in Huntington, W.Va., where he later announced switching his party affiliation from Democrat to Republican. The governor has said he maintains contact with the president and has pitched ideas including a subsidy for utilities that burn coal from the eastern U.S.

Source: Associated Press

On April 15, the court ordered the companies to file a status update on paying the civil contempt judgment no later than April 19.

In March, employees accused Justice's Bluestone Industries Inc. of allegedly keeping money that was withheld from their paychecks to pay for health and dental insurance. In a separate lawsuit against Bluestone, an employee claimed that he had been forced to pay wire transfer fees to receive wage payments since mid-2018. Payments were wired to the plaintiff, a March 2018 filing states, because Bluestone was issuing paychecks that would bounce on deposit. Both cases are pending before a federal court in West Virginia.

On March 20, in yet another pending case involving Justice, Berger ordered Bluestone's top executives to attend a March 28 hearing about enforcing a settlement between the company and its employees, who said Justice's company stopped paying and remained in arrears on at least $626,600 of unpaid funds over violations of federal labor standards.

When a set of Justice companies entered into a consent decree with the U.S. Environmental Protection Agency in late 2016 to settle numerous water discharge violations at the companies' mines, they were required to pay a $900,000 civil penalty.

The U.S. Department of Justice said in the decree that it reviewed financial information submitted by the Justice companies and based its relaxed civil penalty on Southern Coal Corp.'s "limited financial ability to pay." Otherwise, the agreement said, civil penalties would have been "substantially higher." The companies accumulated millions more in enhanced penalties tied to terms of the settlement since the agreement.

Attorneys representing Justice companies in 2017 claimed that a Kentucky magistrate judge's recommendation for default damages of $60 million would "bankrupt the companies, cost hundreds of jobs, and undermine the companies' ability to satisfy environmental and other critical regulatory obligations in Kentucky and throughout Central Appalachia." In that case, New London Tobacco Market Inc. and Fivemile Energy LLC alleged that the Justice companies failed to honor a contract and then fraudulently transferred property to prevent the plaintiffs from collecting on the court judgment.

Essar Steel Algoma Inc alleges in a December 2018 filing in the U.S. District Court for the Southern District of New York that Justice's Southern Coal was an "undercapitalized" entity in court filings seeking damages of at least $6.7 million over undelivered coal. Algoma, in the ongoing case, further alleges that Justice management and Justice family corporate entities siphoned funds from Southern — possibly even for personal use — leaving the subsidiary "judgment proof" and unable to fulfill obligations to transport coal that Algoma purchased. Although Algoma paid Southern more than $54 million in 2016, Southern said it could not afford to ship the coal, Algoma alleged.

"We must say that we vehemently dismiss any accusation that there has ever been or ever will be an intent to move money around in an improper or unlawful fashion to avoid an obligation," the Justice family companies said in a statement to S&P Global Market Intelligence.

Losing 'big, big, big money' in coal

Algoma said it held a face-to-face meeting in August 2016 with Jim and Jay Justice, the governor's son, during which Algoma was requested to make an "immediate payment of approximately $2.3 million to address Southern's alleged liquidity and cash flow issues."

Jay Justice said in a March 2018 deposition related to the Algoma case that from 2012 to very recently his father "plowed in tons and tons of money" into the family's coal operations to keep them running and avoid the additional costs of idling the operations during a recent market downturn.

"For a number of years we were losing, like all the coal companies," Jay Justice said in the late 2018 court deposition. "We were losing big, big, big money."

Murray Energy Corp. CEO Robert Murray, a fellow coal operator, supported Justice's opponent in the 2016 gubernatorial race. Murray criticized Justice at the time for having "about 20 lawsuits against him for not paying his bills" and contributing to a "bad image for the coal industry."

Bray Cary, the media and sports marketing entrepreneur who has since become a senior adviser to the governor, blasted Justice over his debts in the months leading up to the governor's election.

"These bills go back years," said Cary, while hosting an episode of The State Journal's "Decision Makers" talk show. "It's willful and it's wrong."

Between 2012 and 2016, the Justice family coal companies — primarily Southern and its affiliates — "sustained very significant financial losses," the Justice family companies explained in an email to S&P Global Market Intelligence. Justice elected to not file for bankruptcy like other coal companies but to instead "subsidize the coal companies' losses with operating capital from the family and with borrowing dollars from financial institutions."

A tangled web of companies and responsibilities

The privately held nature of the Justice family companies makes it difficult for third parties to see exactly how an individual company connects to the rest. The governor's 2019 ethics disclosure lists more than 100 business entities that share four mailing addresses for which either the governor or his spouse is a director or officer.

So far, courts have hesitated to allow opponents of Justice's companies to invoke legal doctrines holding the officers or other subsidiaries jointly liable for one subsidiary's actions.

"Each company is formed in a way that the intention is to avoid liability as the result of the actions of others," McGinley said. "It's something that's not at all uncommon in the corporate world, and it can be misused."

Justice-owned companies are seemingly intertwined to the point that many of the employees view the different entities as the same company or even see themselves as working for the family generally, said Algoma in a December 2018 filing. For example, Southern employee Steve Sarver said in a court deposition related to the Algoma case that he works for "all of the companies" and when he entered the coal business he worked for the family, generally. Sarver also testified he sold coal under Southern's name on behalf of and for the benefit of all the companies owned by the Justice family, the filing said.

The question of whether the Justice companies are separate businesses sharing common ownership, or are functional divisions of a single enterprise, is not clear-cut but important. The entire organization — and potentially an individual — could be liable for the obligations of an affiliate if a court decides the affiliate is part of a shared enterprise or functionally operates as an "alter ego" of the owner.

Such a result is potentially problematic for Justice's companies. The family companies said that if another of the family businesses were required to pay a court-ordered $1.2 million sanction levied against its Justice Energy Co. Inc. subsidiary, for example, it "would very much hinder the viability" of the family's other businesses.

While the Justice family companies say they expect the individual companies to succeed on their own, the companies do seem to help one another from time to time, and the lines between the family and its organizations are often difficult to distinguish.

Documents from Justice's family Old White Charities Inc. tie more than $6.5 million in assets belonging to Justice's Bluestone and Southern coal companies to the golf tournament associated nonprofit. Recent filings with the Internal Revenue Service show the organization had assets worth $7.7 million and liabilities of over $22.9 million in 2017. Justice's Greenbrier resort, golf tournament and charity are all subjects of a recent federal subpoena naming the governor.

"I mean, let's just be real, I am the charity. I have been the charity," Justice said when asked by reporters about the charity, according to West Virginia MetroNews.

In one deposition filed in the Algoma case, Stephen Ball, general counsel for multiple Justice companies, called deposits from Justice Family Farms LLC to Southern "just another example" of "not uncommon" intercompany loans between Justice family companies. According to depositions in the Algoma case, the loans would occur through parent subsidiaries, other Justice-owned entities or loans from shareholders including the Justice family.

Securities filings detail an instance where Justice's Ranger Energy Investments LLC denied then-acquisition-target National Coal Corp.'s request for financial records and commitments in 2010. Counsel for the Justice family companies explained that Justice and his affiliated companies "had substantial financial resources that were far in excess of the proposed merger consideration" and would step in to cover any shortfalls if Ranger had insufficient funds.

Moving forward on met coal rebound

In recent years, the markets for coal used in steelmaking rebounded and the Justice family's metallurgical coal mines are now profitable and more than self-sufficient, the Justice companies said in a statement, better positioning them to address lingering liabilities.

"There are however remnant obligations primarily from the thermal coal assets in Kentucky and Virginia that still remain on a small level," the Justice family companies said. "Collectively, the Justice entities are one by one trying to chip away and satisfy those obligations fully."

A coal mine owned by West Virginia Gov. Jim Justice sits idle near Hindman, Ky., on Aug. 31, 2016.

Source: Associated Press

The Justice family companies point to the results of a recent case stemming from nonpayment to James River Equipment Co. as evidence they are committed to paying their debts. James River confirmed satisfaction in writing after they were paid in full, Justice companies said in a March 26 statement, but the U.S. District Court for the Southern District of West Virginia continues to seek payment on a sanction 10 times higher than the debt obligation that it says the Justice companies inherited from a different owner of the assets.

"The Justice companies have always tried to operate with a very lean and small overhead structure to control costs," the statement said. "In some cases, mistakes got made."

Despite a history of litigation, the Justice family companies continue to secure business. The coal industry does not have many large companies today and the list of coal producers mining metallurgical coal is even smaller.

Justice's companies mined about 1 million tons of coal in 2018, primarily from Bluestone's metallurgical coal operations in West Virginia, the companies wrote. They anticipate mining about 3 million tons of metallurgical coal in 2019. Comparatively, Contura Energy Inc., the largest metallurgical coal miner in the U.S., mined about 12 million tons, or 17%, of the 70 million tons of the coal used in steelmaking from the U.S.

A 2016 Washington Post investigation counted more than 100 civil cases against Justice's companies. At the time of publication, a federal court database shows Justice companies are involved in at least two dozen more cases filed since as fines for both pollution and mine safety problems at Justice-owned coal operations have continued to mount.

The Justice family companies said in their statement that they are making an effort to increase staffing in key areas such as legal, accounting, and environmental compliance to ensure "obligations are met in a timely and professional manner."

"No question we all make mistakes and no question that there have been instances where Justice's attorneys have dropped the ball. There has never been and there never will be an ill intent or a lack of respect for the court or the legal process in any way," the Justice family companies told S&P Global Market Intelligence. "Steps have been taken to avoid missteps that took place in prior cases by strengthening outside professionals and consultants, so things are now done timely and correctly."