CHARLESTON, W.Va. — Federal prosecutors are asking to “pierce the corporate veil” and hold Gov. Jim Justice and his family responsible for a civil contempt sanction of $1.23 million.
The defendant in the longstanding case is Justice Energy Corporation. But federal prosecutors who were assigned to determine how the money could be collected have determined that it can’t unless the individuals in the corporation are held responsible.
Lawyers including U.S. Attorney Mike Stuart wrote:
“After completing discovery, the United States has concluded that JEC was, and is, in reality, a shell corporation with no real independent and separate corporate existence. JEC has no substantive assets, has not engaged in true corporate activities, and is dominated and controlled by a limited liability company and certain corporations that are dominated and controlled by James C. Justice II and James C. Justice III (“the Justices”), the shareholders of the corporate entity that ultimately controls JEC.
“The limited liability company and related corporate entities, along with the Justices, are the alter egos for JEC and should be held accountable for the civil contempt sanction since they controlled JEC’s actions leading to the sanction. The United States now seeks a ruling from the Court to allow it to impose liability upon and to seek recovery from these alter egos of JEC to pay the civil contempt sanction that the Court has assessed in this case.”
The story was first broken today by West Virginia native Taylor Kuykendall with S&P Global.
The Department of Justice, including Stuart, made two court filings. One was a “motion to impose liability on the alter egos of defendant Justice Energy Company” that also includes transcripts of depositions. The other was a shorter memorandum in support of doing so.
Last week, U.S. District Judge Irene Berger issued an order giving Justice Energy Company a week to describe how it will pay a civil contempt sanction of $1.23 million.
A May 31 memo from U.S. Attorney Stuart to lawyers for Justice alluded to that deadline and his intention to pierce the corporate veil. Stuart advised immediate payment of the $1.23 million to avoid that outcome.
That memo was attached to the other documents filed in federal court today.
Stuart wrote that he believes it would be in the best interest of Justice Energy and related companies “that the contempt sanction be paid immediately or that a payment plan be submitted to the court that is properly secured and will meet the Court’s criteria set forth in the order entered yesterday.”
He warned that he believes Berger would accept a proposal to pierce the corporate veil.
“I believe that a motion to impose the obligation to pay the $1.23 million contempt sanction assessed by Judge Berger in this case on the other limited liability companies, corporate entities, and shareholders for which Justice Energy Company, Inc., is serving as the alter ego is likely to be successful.”
The case first filed Nov. 6, 2013, was only for $148,496.14. James River Equipment alleged that Justice Energy failed to pay for parts, equipment and service.
But Justice Energy failed to pay and its representatives failed to appear at a series of hearings.
This was at a time when the company was still owned by the Russian Energy company Mechel OAO. Justice had sold to Mechel in May 2009 for $568 million and then bought it back in 2015 for $5 million.
As the struggle continued for James River to receive the judgment, the company in late 2015 filed a motion for contempt.
That motion also included a request to “pierce the corporate veil” of Justice Energy and to imprison its corporate officers and directors until the payment was made.
At the time, Berger declined to go that far.
“The Court notes that piercing any corporate veil is an extraordinary remedy, and unnecessary at this point to achieve the plaintiff’s intended results in this case,” Berger wrote in a Jan. 5, 2016, order.
But the judge did grant the contempt motion and ordered Justice Energy to be fined $30,000 a day until it could demonstrate compliance with the earlier order.
By Feb. 26, 2016, as Justice was warming up for the Democratic primary race for governor, the situation had barely improved.
But the two parties had worked out a payment plan, and Berger agreed.
She ordered the judgment of $1,230,000, representing the total amount of the sanction from her earlier order.
Justice’s companies appealed the case, but on August 17, 2018, the Fourth Circuit Court of Appeals affirmed Berger’s rulings.
This past Jan. 31, Berger granted a motion for federal prosecutors to intervene and conduct discovery of Justice Energy’s assets.
In a joint status update filed April 19, both parties indicated that process was concluding.
Noting the lack of payment so far, Berger last week ordered the parties to submit a proposal no later than June 6 “to inform the court as to the date by which the payment will be made in full or proposing a schedule of payments, to be completed no later than Jan. 1, 2020, for the court’s review.”
The billionaire governor never has placed all of his assets into a blind trust. He does produce an annual financial disclosure form.
Early in his time in office, he produced a letter to state employees. It said he would like to pursue a blind trust but the process had been slowed by the size of his business portfolio.
All along, he has said he has put Jill, in charge of The Greenbrier and Jay in charge of the coal operations.
“I’ve separated myself from my business holdings by putting my children in charge of our family’s business operations. Being Governor is a full-time responsibility,” Justice wrote in his 2017 letter.
“I want to put all of my assets in a blind trust; however, the process has been slowed down by the multitude of financial institutions that work with my family’s companies. I will continue to file very detailed ethics reports, just like during the election, which lets everyone know about my family’s businesses and investments.”