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$50 million Coal contractor mess

Published: Friday, January 11, 2002
Page: P4A
Byline: Gzedit

EIGHT years ago, Gazette investigative reporter Paul Nyden discovered an ugly business practice: Certain large out-of-state coal corporations used hundreds of local contractors to dig their West Virginia coal. Often, the contractors were little more than stooges, controlled entirely by the owner firms.

The contractors failed to pay millions of dollars in Workers' Compensation fees, union medical benefits, taxes and other costs - then they went out of business. The owner corporations shrugged off responsibility for those debts, saying they were owed by the vanished contractors.

As a result, the out-of-state giants evaded large overhead expenses required for coal mining. This gave them an unfair advantage over honest firms that paid all required fees.

Eventually, it was determined that Island Creek Coal Co. had avoided $47 million in Workers' Comp premiums and interest, the Massey conglomerate had ducked about $40 million, and others evaded lesser sums. Altogether, the state fund that supports injured workers had lost more than $70 million in premiums. In contrast, honest firms such as Arch Mineral and Ashland Coal paid all required fees.

Nyden's disclosure caused an upheaval. The Legislature changed state law to make owner firms responsible for contractor obligations in the future. The Caperton administration began filing lawsuits to force the owners to pay Workers' Comp premiums that had been ducked in the past.

Nyden's 1993 reports won three national newswriting prizes in 1994, and his continued digging into the issue won further awards in subsequent years.

When the Republican Underwood administration took office in 1997, it tentatively continued the recovery lawsuits - then began trying to kill them. Significantly, both Gov. Underwood and his Workers' Comp chief, William Vieweg, were former Island Creek executives. Their attempt to abandon the cases caused political controversy.

Conservative business groups and corporate lawyers scoffed at the notion that owners were liable for debts of their contractors.

In 1999, Vieweg officially dropped the recovery attempt. But a labor group, the Affiliated Construction Trades Foundation, intervened in McDowell County Circuit Court in an attempt to salvage one case. Last Oct. 1, Judge Booker Stephens upheld the validity of the lawsuits - and ruled that Vieweg had "breached his fiduciary duty" to the Workers' Comp fund by trying to halt the recovery.

The ACT Foundation's court victory terrified the out-of-state owner corporations. They began offering to settle out of court. Wednesday night, Gov. Bob Wise broke the news that a dozen large owners represented by Charleston's Jackson & Kelly law firm had agreed to pay $50 million to resolve the suits. Ten other companies that had been sued for $21 million are expected to surrender soon.

Frankly, this plea-bargain is disappointing. The ACT Foundation says the $50 million is only 15 percent of $345 million that might have been regained from the dozen firms, counting accumulated interest.

Also, outside lawyers hired by the state will gobble 20 percent of the money (less than the parasitic 33 percent usually taken by lawyers).

Still, a partial victory is better than nothing. And it's good that guilt finally is established, after eight years. It will be satisfying when the book is closed on this unsavory chapter of West Virginia business history that never should have happened.

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