CHARLESTON, W.Va. — Companies owned by Gov. Jim Justice and his family are being sued in federal court in Kentucky, accused of fraudulently transferring property to avoid responsibilities in a business deal that was the subject of a related lawsuit a few years ago.
The lawsuit wants punitive damages of at least $16.9 million.
“This agreement was an unlawful and corrupt agreement by the conspirators to accomplish an unlawful goal of fraudulently transferring or liquidating valuable real estate belonging to Justice Companies, so that plaintiffs could not collect on debts owed to them by Justice companies,” the lawsuit alleges.
The lawsuit filed this past Monday names James C. Justice Companies, Justice Farms of North Carolina, Oakhurst Club LLC, Southern Minerals LLC and James C. Justice III, also known as Jay, the governor’s son who now runs the family’s coal operations. The suit claims Jay Justice is personally liable.
Governor Justice is listed, not as a defendant but as a member of the limited liability companies that are defendants. His role as governor of West Virginia is spelled out clearly in the filing, though:
“James C. Justice II is a citizen of the State of West Virginia. He is the current governor of West Virginia and will be referred to herein as ‘Governor Justice.’ Governor Justice is not named as a defendant in this action, but is a member of the limited liability companies identified below that are defendants. He is the father of Jay Justice and Jill Justice.”
The lawsuit was first reported Friday afternoon by the Lexington Herald-Leader in Kentucky.
Barry D. Hunter, a Lexington attorney who represents the Justice companies, responded to the allegations in the lawsuit to the Herald-Leader.
The Justice organization has reviewed the complaint and feels the claims are “baseless and completely false,” Hunter told the newspaper.
“They intend to vigorously defend the allegations in the latest suit” but will not comment further, Hunter said.
The lawsuit was filed by New London Tobacco Market Inc. of Tennessee and by Fivemile Energy LLC of Kentucky. The companies entered into business with Justice’s companies in 2005.
One part of the agreement was $10,000 retainer fees that were to be paid to New London Tobacco Market each month starting in 2010. The lawsuit contends that the retainer fees have not been paid since 2011, resulting in $770,000 in debt.
Kentucky Fuel also owes $20,000 in rent, the lawsuit alleges.
The lawsuit contends, “Kentucky Fuel’s and Justice’s Companies’ failure to honor their contractual obligations described herein was intentional and was part of their business plan and strategy, as evidenced by their course of dealings whereby they have evidenced a pattern and practice of disregarding and refusing to pay their contractual obligations.”
In 2012, a federal lawsuit over the finances was filed by New London Tobacco Market and Fivemile Energy.
In 2014, the court entered a default judgement against Justice’s companies. It also entered judgment in favor of the plaintiffs and against Justice’s companies for fraud and punitive damages. That matter isn’t fully concluded in the court proceedings.
Meanwhile, the new lawsuit alleges that Justice’s companies have attempted to shield themselves against the earlier decision through transferring assets.
“After the filing of the original action in May 2012, the Justice Companies in combination with other persons and companies, began to engage in a series of transactions with the intent to hinder, delay or defraud its creditors.
“Some of these transfers were transfers to real estate to Justice’s Companies’ related entities, insiders or affiliates made without valuable consideration for the real estate transferred. Others were transfers of valuable real estate in exchange for cash or other consideration that would make it more difficult for creditors, such as plaintiffs, to collect debt from Justice Companies.”
The lawsuit contends that beginning in 2013 and continuing through at least 2016, Justice companies engaged in numerous additional transfers “with the intent to hinder, delay or defraud its creditors.”
The transfers were made to affiliates and insiders of Justice companies, the lawsuit claims.
“Justice companies did not receive consideration equal to a reasonably equivalent value of properties transferred because no consideration was paid for any of these transfers.”
The lawsuit goes on to list the specifics of some of the transfers. For example, in late 2013, Justice companies transferred the mineral rights to about 929 acres in Marion County, South Carolina, to Southern Minerals LLC. “There was no reasonably equivalent value received for the transfer.”
“Plaintiffs believe and therefore allege that the intent of Justice Companies and co-conspirators has been and is to convert real property to cash or other assets that will be difficult to trace or that can be displaced or hidden, with the intent to hinder, delay or defraud plaintiffs and other creditors.”
The lawsuit takes note of cash flow problems with Justice’s companies. The companies have racked up tax liens and fines of millions of dollars in multiple states, including Kentucky and West Virginia. A National Public Broadcasting report published just before last year’s gubernatorial election detailed the debts.
Those problems played into what’s disputed in federal court, the latest lawsuit alleges.
“The transfers described above were made at a time when Justice Companies was not paying its debts as they became due,” the lawsuit contends.
“As a result, Justice Companies was presumably insolvent at the time of these transfers. In addition, upon information and belief, Justice Companies and its affiliates were not paying mine safety fines, county taxes and federal and state tax liens as these debts became due.”
The new lawsuit went on to conclude, “Justice Companies has also represented that plaintiffs would have difficulty in collecting a judgment against it. It has represented that it would have to file bankruptcy if plaintiffs were awarded a judgment in the original action in the amount recommended by the magistrate judge.”
Justice’s promises
Responding in late July to reports that more tax debts amounting to almost a million dollars had racked up at the Kanawha County Courthouse, Justice said those debts would be paid — but not when or how.
“I could go on and on and on and tell you, and there’s a great many details on stuff that’s twofold: One, that I can’t tell you. And two that I just don’t know,” Justice said.
“I’m not involved on day-to-day operations on our companies nearly like I was before. But I can tell you this. For us to be focused in any way on an obligation that Jim Justice has to the government, I’d love for you to say ‘What has he never paid?’”
“I’ve said it a thousand times over. Every obligation will absolutely be fulfilled.”
During that appearance on MetroNews’ “Talkline,” he also described money being set aside to pay the debts.
“But the bottom line of the whole thing is, you have disputes, you have things that can’t get ironed out, you have money sitting in escrow today that are not earmarked, they’re sitting there waiting on people to resolve their dispute,” Justice said.
“And the last thing I want in the world is to keep getting beat up on these taxes because the money is sitting there waiting. The money is sitting there waiting, but there are items that have to be resolved.
“People have got to understand that when you deal with the magnitude of what I’m dealing with, there’s complications. The complications have got to get resolved. Absolutely the taxes will be paid.”
More Kentucky conflict
Earlier this month, another Kentucky newspaper, the Courier-Journal in Lexington, wrote about a lawsuit filed on behalf of Justice coal companies aiming at the personal assets of two top Kentucky regulators.
The lawsuit filed in the Pike County courthouse blames Kentucky’s natural resources commissioner and deputy commissioner blame them for the failure of Justice’s Kentucky Fuel Corporation to meet reclamation deadlines, potentially costing more than $4.5 million in fines.
The lawsuit sought money from the regulators themselves, rather than from the state.
The two lawsuits were filed on behalf of the Kentucky Fuel Corporation by The Getty Law Group in Lexington.
“I use the word accountability, not intimidation,” attorney Richard Getty told the Courier-Journal, adding that the company has been getting close to meeting its reclamation obligations and that regulators were preventing them from doing so.
“When a regulator crosses a line, he ought to be held accountable.”
Below is the federal lawsuit filed against Justice’s companies: