The U.S. government is seeking to pierce the corporate veil and hold West Virginia Gov. Jim Justice and his son liable for a $1.2 million federal contempt of court sanction.
Justice Energy Co. Inc. is "essentially a shell corporation with no substantive assets" that is ultimately dominated and controlled by Jim Justice and his son Jay Justice, U.S. Attorney Michael Stuart wrote in a June 5 court filing in the U.S. District Court for the Southern District of West Virginia. The court ordered the company to pay the sanction in February 2016, and Justice Energy ultimately lost an appeal to a higher court that claimed the debt was incurred under a previous owner and should not be the responsibility of its current ownership.
"It would be an injustice to allow the alter egos of Justice Energy to escape liability for the civil contempt sanction since their decisions and actions directly led to the imposition of the civil contempt sanction on Justice Energy Co. because these alter egos dominated and controlled Justice Energy Co. to engaging in the conduct which led to the imposition of the civil contempt sanction by the court," Stuart wrote. "The United States believes that under applicable law that the alter egos of Justice Energy are otherwise also liable for the civil contempt sanction imposed by the court on Justice Energy."
The Justice family told S&P Global Market Intelligence in a previous statement that Justice Energy could not pay the sanction on its own, but insisted the numerous coal and other businesses operated by the governor function as single entities that are responsible for their own finances. In late May, U.S. District Judge Irene Berger ordered the company and the U.S. government to submit a plan for paying the fine by June 6.
The sanctions were imposed on Justice Energy after the company failed to make six monthly payments of $30,000 to James River Equipment Virginia LLC. Justice Energy argued that the sanction was due to actions that occurred under the management of previous owners of the company. The Justice family had sold Justice Energy and several other assets to Mechel OAO for $436 million in 2009 before buying them back at a steeply discounted price a few years later.
The U.S. attorney asked the court to enter an order finding and holding that the alter egos of Justice Energy, which include the governor and his son, are liable and obligated to pay the civil contempt sanction. A memorandum in support of the government's motion said that a review of Justice Energy's finances shows a similar pattern of relying on other Justice subsidiaries to "eschew responsibility for maintaining its own accounts and payroll."
"Here, there is no doubt that Justice Energy is not operating as a real corporate entity, has no real separate corporate existence, is undercapitalized, and is being operated using the assets of a limited liability company and other corporations ultimately controlled, directed, and owned by the Justices," the U.S. attorney wrote. "They are the alter egos of Justice Energy and should be held accountable for the civil contempt sanction assessed against Justice Energy. Otherwise, an injustice will be worked upon the court."
The Justice family has faced numerous lawsuits over unpaid financial obligations, a problem the company recently said in a statement was the result of past poor conditions in the coal market and a decision not file for bankruptcy as many in the coal sector did at the time. Berger previously admonished Justice Energy for ignoring court orders, deadlines and obligations.
WV Metronews recently reported that New Jersey-based Siemens Financial Services Inc. is suing the governor for nearly $4 million over a personally guaranteed loan for one of his companies. According to court documents, the radio station reported, the Justice-owned Southern Coal Corp. committed to a $7.6 million loan in early 2015.
After Southern defaulted on payments, Siemens sent Justice a letter demanding the immediate payment of all debts due Jan. 2, 2018, but the loan was not settled. Justice began making payments on the loan in September 2018, but the remitted amounts were substantially less than than the monthly payment of $157,000 the company is supposed to pay, the radio station reported.