A federal judge in Delaware has ordered a company owned by Gov. Jim Justice and his family to be moved toward a sale over a tangle of debt.
U.S. District Judge Richard G. Andrews entered the order late last week.
The order kicks into gear a forced sale of Bluestone Mineral Inc., a holding company in the Justices’ expansive business network. Shares of Bluestone Mineral “shall be sold to satisfy the judgment” in a form to be proposed by the parties to the court action within 30 days of the order.
Bluestone Mineral is significant in that it isn’t just one of Justice’s companies. As a holding company below the parent Bluestone Resources, which operates mainly as a coal company, Bluestone Mineral represents the full value of an umbrella of additional Justice properties such as National Resources Inc., Bluestone Coal Sales Corp., Nufac Mining Co., Frontier Coal Co., and Kentucky Fuel.
A major question is what financial value those companies have.
The company suing over the debt and attempting to liquidate the Justice assets characterizes the family businesses as “in dire financial shape.” The judge’s filing says the initial sale order should notify the creditors in Justice’s other debt conflicts, with appointment of a third-party financial guardian to take control of Bluestone Mineral until shares of the business are ultimately sold.
This has come to a head just as Justice, a two-term Republican governor who made his early political reputation for his business acumen as West Virginia’s only billionaire, hits the stretch run of a U.S. Senate campaign.
The financial conflict has been simmering in court and now has come to a boil. A few months ago, the judge issued an earlier order for U.S. marshals to begin taking control of the properties to satisfy debt obligations. That earlier order gave the Justice companies 20 days to provide a response, but the judge said there was no response over a four-month period. So now he brought down the hammer.
The action is meant to satisfy at least a portion of a debt to Caroleng Investments Limited, the same company that successfully sought a forced sale of a Justice-owned helicopter to satisfy debt earlier this year.
Each move — first the helicopter liquidation and now the potential seizure of the businesses — is part of a dispute between Justice’s Bluestone Resources and Caroleng Investments, representing the Russian mining company Mechel that bought and sold properties with Justice years ago.
“Our job is to get our client paid on its judgment, so we will be looking at any and all of Bluestone’s assets to satisfy that judgment,” said Zachary Mazur, an attorney with the Sarachek Law Firm in New York, representing Caroleng.
This saga has been unfolding for years, but the most recent events occurred when lawyers for Caroleng filed a motion last week to enforce a move on the Justice businesses.
After the period of no response to the earlier warning shots, Caroleng asked for judgment against the companies.
“Caroleng is also entitled to immediately enforce the sale of Bluestone Resources’ shares in the BMI subsidiary to satisfy the unpaid judgement,” lawyers for Caroleng wrote, referring to Bluestone Minerals.
The Caroleng filing indicates shares of Bluestone Minerals are property of the parent company Bluestone Resources. An organizational chart filed for parent company Bluestone Resources, filed in the case as an exhibit, shows James C. Justice II, the governor, with a 60% share of Bluestone and his son, James C. Justice III, usually known as Jay, with a 40% share.
Caroleng’s filing says shares of Bluestone Minerals should be put under the control of a third-party financial guardian, a receiver, “for the purposes of marshaling the assets and preserving the value of BMI for the benefit of Bluestone Resources’ creditors.
“In turn, the BMI shares should be offered for sale bv the U.S. Marshal Service, or its designee, with the proceeds being used to pay Caroleng and other creditors, according to lien priority and according to Delaware law.”
So, West Virginia’s governor is the majority owner who could see the federal court strip and sell his family business.
The Caroleng filing takes note of that and describes additional, enormous debts for Bluestone: “It is part of a group of companies controlled by the current Governor of West Virginia, Jim Justice II and his family.
“The Bluestone business is in dire financial shape, and Caroleng understands that Bluestone Resources subsidiaries are financially compromised by years of mismanagement. By some estimates, Bluestone Resources and its entities may owe diverse creditors over $1 billion.”
That’s a reference to GLAS Trust Company, a successor to now-defunct Greensill UK, alleging that Bluestone owes it at least $700 million from defaulted loans. Carter Bank & Trust, the longtime Justice banker from Virginia, has been trying to collect on debt of about $300 million.
Caroleng claims debt of more than $10 million — an amount that continues to grow. This particular situation winds back to Justice’s business deals with the Russian mining company Mechel, which is Caroleng’s parent company.
Justice sold the family’s coal assets to Mechel in May 2009 for $436 million in cash and 83.3 million preferred shares of Mechel stock. Justice then bought Bluestone back in 2015 for $5 million. The mines had closed under Mechel, but Justice reopened them.
The deal to buy back the Bluestone properties included a provision to continue paying the Russian mining company $3 a ton in royalty payments for mined coal, along with defined portions of future sales. In court filings, Caroleng claimed Bluestone withheld the royalty payments.
Mechel first made its debt case to a three-person panel for the International Chamber of Commerce, which arbitrated the dispute in Paris, France, in October 2019, two years into Justice’s first term as governor. The panel awarded $8.4 million plus pre-award interest of $1.7 million. Representatives of Mechel say the debt has continued to grow.
Caroleng, on behalf of Mechel, has been acting on a 2021 federal court order to enforce the arbitration award but has been challenged to collect on its judgment.
Now the lawyers for Caroleng say they want to make sure the Bluestone assets are preserved so the debt can be collected.
“Given the mismanagement at Bluestone Resources and because Caroleng is effectively levying all the shares of subsidiary BMI, it is logical and necessary for the court to appoint a temporary receiver during the process of selling the shares,” wrote lawyers for Caroleng.
“The job of the receiver should be to preserve the value of BMI, to the extent possible, for the purpose of maximizing the sale price.”