In a curious twist on the Ashford/Simpson love duet, Massey Energy (NYSE:MEE) shareholders have signaled that they intend to pursue claims aggressively against the board of directors notwithstanding efforts by the latter to make a wash of the whole thing. The matter is now before the West Virginia State Supreme Court.

The case elements center about liability, reputation, and board oversight. Simply put, plaintiffs allege that the Board of Directors failed in its Duty of Loyalty by not ensuring that safety processes were being implemented. Safety, as we have noted before, is a key business process underpinning reputational value. And the safety-linked disaster at Massey certainly did knock with wind out of the company's reputational value.

We've seen this movie before -- most recently with Johnson and Johnson (see below). Here is how the National Association of Corporate Directors explains the current situation in their 31 May newsletter:

"The fate of a shareholder vote on Massey Energy's proposed $7.1 billion sale to rival coal producer Alpha Natural Resources is up to the state Supreme Court," the Washington Post (May 31) reports. The court is expected on Tuesday to take up the request by a trio institutional investors who are seeking to prevent a June 1 vote by Massey shareholders. The shareholders will also urge the court to seal case records. "The Charleston Gazette and National Public Radio are asking the court to open the files," the Post notes. "They argue the documents may shed light on the April 5, 2010, explosion at Massey’s Upper Big Branch mine that killed 29 miners." The investors state that the explosion and other actions damaged the company's value.

The Wall Street Journal (May 31, Maher) adds that the court will decide whether to grant a temporary injunction sought by the investors, "who allege that Massey's board agreed to the sale to escape any personal liability for a coal-mining accident last year that killed 29 miners and drove down the company's stock price." The suit claims the company not only gave Alpha preferential treatment during the bidding process, it also failed to disclose key information about the negotiating process in its filings with the SEC. In addition, the Journal states, "The West Virginia suit alleges that the board failed to comply with a 2008 court order to institute new safety systems at the company." The plaintiffs include the California State Teachers' Retirement System.

Combined, Benzinga (May 31, Wilcox) notes, "Alpha Natural and Massey would the be largest U.S. producer of metallurgical coal." Additionally, Massey is facing a separate suit brought by the New Jersey Building Laborers Pension Fund, which also seeks to halt the sale.

Here's the background as summarized recently in Intellectual Asset Management magazine, the official publication partner of the Society. According to Cathy Reese, a partner with law firm Fish & Richardson and chair of the Intangible Asset Finance Society’s Committee on Intangible Asset Governance, the Delaware Supreme Court’s 2006 opinion in Stone v Ritter adopted the concept of oversight liability, which had been discussed some 10 years earlier in the influential 1996 In re Caremark decision by the Delaware Court of Chancery. Importantly, this duty of oversight applies to all corporate assets, including intangible assets.

The court in Stone v Ritter stated that director oversight liability may be predicated on facts showing that either: “(a) the directors utterly failed to implement any reporting or information system or controls; or (b) having implemented such a system or controls, consciously failed to monitor or oversee its operations thus disabling themselves from being informed of risks or problems requiring their attention.”

Now the West Virginia Supreme Court gets to weigh in on the matter.