CHARLESTON, W.Va. — A Kentucky company with a federal lawsuit against Gov. Jim Justice and his family’s businesses now accuses the Justices of racketeering, conspiracy and fraud.
Fivemile Energy, which has been suing the Justice companies on behalf of New London Tobacco Market since 2012, filed an amended complaint this spring claiming the Justices have been intentionally shifting money and property from company to company to avoid paying debts.
The new action accuses the Justice family of carrying out a business strategy for their personal benefit, shifting resources among their many companies to avoid paying debts. These transfers are carried out by wire or mail, without fair compensation, the lawsuit alleges.
A lawyer for the Justice companies contends the original lawsuit was weak so the new allegations have been ginned up in an attempt to make the case pay off.
“It’s just the latest effort to try to squeeze money out of my clients that they’re not entitled to,” said Richard Getty, a Kentucky attorney representing the Justice companies. “They know the Justices are making money in West Virginia on metallurgical coal.”
Getty contends the racketeering claim is flimsy because there’s no evidence of a broader scheme or alleged victims beyond Fivemile.
This is a civil suit, filed in U.S. District Court for the Eastern District of Kentucky, so the accusations don’t equate to criminal charges. But lawyers for Fivemile Energy are attempting to build their lawsuit on accusations of unfair business practices based on conspiracy and racketeering allegations.
The lawsuit alleges that the Justices run an enterprise that includes themselves and “a core group of loyal employees of various entities who will do what the Justices say.
“The purpose of the enterprise is to utilize these entities for the Justices’ own personal benefit and to utilize the entities to avoid having to pay debts owed by various members of the enterprise.”
The lawsuit does not appear to be related to recent questions asked by federal prosecutors, but there are overlapping themes.
In a separate, longstanding $1.23 million civil contempt case in federal court, federal prosecutors this month asked whether Justice Energy is actually a shell company. Prosecutors filed a motion to “pierce the corporate veil” to force the Justices to personally pay the sanction but wound up agreeing to allow a separate Justice Company, Bluestone Resources, to pay.
And separately from that, the U.S. Department of Justice has subpoenaed West Virginia tax officials for a decade of tax documents relating to Governor Justice and his family businesses.
Getty, the lawyer for the Justice companies, says the questions about whether the Justice companies shuffle money to avoid liability don’t hold up.
“All these companies are separate corporate entities, he said. “Their books and records are kept separately.”
Justice has consistently said his companies will pay their debts, that the apparent federal investigation won’t add up to much and that the companies’ financial outlook is improving. He has also suggested people shouldn’t worry about the businesses.
“Our businesses are doing better right now than they have done for the last probably six years, way better,” Justice said last week.
Asked about lenders coming after his businesses in court, Justice said not to worry.
Justice said people shouldn’t worry so much about the finances of his companies.
“At the end of the day I would say to you one thing, don’t worry about my stuff,” Justice said. “Don’t worry about my businesses. Don’t worry about a thing in the world except this state. That’s what you should be focused on is this state. Because things are going to be fine in my business world.”
The Fivemile Energy case refers to him as Governor Justice throughout the filing and accuses Justice and his family of a consistent pattern of unfair business practices.
“This includes the transfer of assets from entities that have legal obligations that they do not wish to pay, to other entities in order to avoid payment of their debts,” the lawsuit states.
“Often this is contrary to the best interest of the entities themselves, but is intended to benefit the Justices. Their business strategy often is to induce other persons into entering agreements based upon false representations that they or entities they control will perform those agreements when, in fact, they do not intend to honor those agreements or pay the amounts due thereunder.
It continues, “This business strategy includes incurring debts that they do not intend to pay and using delay and forcing creditors to bring unnecessary litigation so that the members of the Enterprise can avoid full payment of their debts. This business strategy also includes actions to deplete various of the entities of assets when they have incurred debts and to transfer such assets, including business opportunities to other entities,, in order to prevent creditors from being able to collect debts owed to them.
“Further, the defendants and the enterprise intentionally disregard and attempt to frustrate the judicial system’s power and ability to provide relief to creditors.”
The lawsuits cites two recent accounts of the Justice company practices.
One was a public broadcasting examination with the headline “Companies sue Justice family companies over debts, find bank accounts empty.”
Another was a Forbes story called “The Deadbeat Billionaire: The inside story of how West Virginia Gov. Jim Justice ducks his taxes and slow pays his bills.”
Lawyers for Fivemile Energy then tell the story of how that company went into business with Justice’s Kentucky Fuel, tried to collect on debt and wound up in the court system for years.
The business relationship started in 2005 when Fivemile’s New London Tobacco Market agreed to assign leases of mineral rights to Kentucky Fuel, owned by the Justice family. Kentucky Fuel provided assurance that it was good for the deal by providing audited Consolidated Financial Statements.
By 2010, the companies entered into an updated agreement. That’s when the relationship began to unravel.
Fivemile Energy contends Kentucky Fuel failed to pay what it owed. That led to the original federal lawsuit, filed in 2012.
Getty, the lawyer for the Justice companies, contends the coal at the property has been marginal. “It’s a bogus claim, frankly,” he said.
Once the federal lawsuit was filed, lawyers for Fivemile Energy claim, the Justice companies “began to engage in a series of transactions with the intent to hinder, delay or defraud its creditors.”
Those transactions, the lawyers contend, had the effect of draining the assets, stockholders’ equity and future net income that had been shown on the Consolidated Financial Statements.
Fivemile claims that each of the transfers by James C. Justice Companies involved the use of wires or mail and were meant to shield assets and avoid debts.
“As a consequence, the defendants converted JCJC from a company who could make good on the Guaranty Agreement into one with no ability to pay,” stated the lawyers for Fivemile.
Some were real estate transfers from one Justice entity to another “without valuable consideration for the real estate transferred.” Others were transfers of real estate for cash.
The lawyers for Fivemile then detail several such transfers, often mineral rights or real estate. Some of the allegations claim that payments that should have gone to Kentucky Fuel instead went to a Goldman Sachs brokerage account controlled by Jay Justice, the governor’s son and president of the coal operations.
“These descriptions are but examples of how persons within the Justice Enterprise used wires and emails to receive income derived from a pattern racketeering activity, acquire or maintain an interest in or control of the Justice Enterprise, and conduct or participate in the conduct of the Justice Enterprise’s affairs,” wrote lawyers for Fivemile.
“These examples are not intended to be exhaustive.”
Another example cited by the Fivemile lawyers was the sale of Justice’s coal assets to the Russian company Mechel in 2009.
Justice sold the coal holdings to the Russian company Mechel in May 2009 for $568 million and then bought it back in 2015 for $5 million.
The Fivemile lawyers claim the end result emptied out the assets of James C. Justice Companies and reorganized control under a new entity, Bluestone Resources.
“This transfer of the Bluestone Assets to New Bluestone, owned 100 percent by Governor Justice and Jay Justice was done with the intent, and had the effect of, stripping JCJC’s interest in the contingency payment and diverting that value to the Justices through their 100 percent interest in New Bluestone,” the Fivemile lawyers claim.
The lawsuit contends such transfers amounted to fraudulent activity. The lawsuit singles out the governor’s son.
“Because the conveyances executed by Jay Justice as described herein constituted fraudulent and tortious conduct, he is personally liable for the damages caused thereby,” the lawsuit states.
The lawsuit also alleges conspiracy.
“As set forth above, Jay Justice and Governor Justice, individually, were transferees of certain of the fraudulent conveyances of JCJC’s assets,” the lawsuit contends.
“As such, and because they were acting to benefit themselves personally and individually, they were not acting in the interests of JCJC.”
Finally, the lawsuit cites the Racketeer Influenced and Corrupt Organizations Act, affecting interstate and foreign commerce, “as evinced by its Bluestone transaction with Russian businesses.”
“Defendants have received income derived, directly or indirectly, from their pattern of racketeering activity as described herein,” the lawsuit states.
“Defendants have used or invested, directly or indirectly, some part of such income, or the proceeds thereof, in the establishment or operations of the Justice Enterprise. Thus, Defendants have thereby violated RICO.”
Lawyers for Fivemile are asking for punitive damages of at least $17 million and judgment for three times the amount of the plaintiffs’ actual damages.
On May 17, the federal court produced a summons for Justice companies, plus the governor of the state of West Virginia.
“If you fail to respond, judgment by default will be entered against you for the relief demanded in the complaint.”