Stuart Grant of Grant & Eisenhofer is a plaintiffs lawyer whose practice is based in Delaware Chancery Court, so he’s developed a certain immunity to business-friendly judicial opinions. But Vice-Chancellor Leo Strine Jr.’s decision Tuesday night to permitMassey Energy to proceed with a shareholder vote on Alpha Natural Resource’s $7billion takeover offer left Grant positively sputtering with outrage. 

 “This ruling has me totally disgusted,” he said in an interview Wednesday morning. “What message is this sending to corporate boards? That there’s no accountability. What message does it send to shareholders and their lawyers? Christ, if you can’t win against Massey and [former CEO] Don Blankenship, you can’t win….These people are just going to walk. This ruling says you can be the worst CEO, you can violate all the laws you want, then you can arrange a sweetheart merger and just walk away.” 

 Those are strong words, and from a lawyer who’s usually moderate in his public comments. But after last week’s hearing on Massey shareholders’ motion for a preliminary injunction to block the vote on the Alpha deal, Grant said he believed Strine would be more sympathetic to shareholders than the judge turned out to be in Tuesday’s ruling, which finds serious flaws in Massey’s evaluation of shareholders’ claims against its directors and officers—including an “awkward” dual role by the company’s lawyers at Cravath, Swaine & Moore—but nevertheless allows the shareholder vote to proceed. 

 As OTC explained in a preview of the hearing, Grant and his co-lead plaintiffs counsel crafted a novel argument to block the Alpha deal, asserting that the merger would let Massey’s directors and officers off the hook for flagrantly and repeatedly flouting safety regulations. Massey shareholders had claimed in a 2010 derivative suit that the board and execs owed them upwards of $1 billion for the value the company lost as a result of its many safety violations, including the horrific 2010 deathsof 29 workers at a Massey mine in West Virginia. But if the Alpha deal went through, the plaintiffs lawyers argued, the shareholders’ derivative claims against Massey’s directors and officers would belong to Alpha—and Alpha would drop them. 

 Judge Strine agreed that the shareholders had provided strong evidence of Massey’s troubling safety record. In fact, he concluded, their derivative suit would survive a motion to dismiss—no small accomplishment for a derivative claim. But the judge was less encouraging about whether the shareholders could meet the high standard of proving that the derivative defendants deliberately breached their fiduciary duty. “Even as to someone like Blankenship,” Strine wrote, “there is a distance between pleading a claim of conscious flouting of the law for the sake of generating profit and proving that claim after a trial.” He also didn’t buy the shareholders’ damages assessment, which is based on the drop in Massey’s value after the 2010 mining disaster. “One cannot equate the offsetting value of the derivative claims with the disaster fall-out,” Strine wrote. 

 More fundamentally, though, the Vice-Chancellor didn’t buy the shareholders’ argument that permitting shareholders to vote on the Alpha deal amounted to letting directors and officers off the hook. Grant and the other plaintiffs lawyers asserted that Alpha had no incentive to pursue claims against individual Massey defendants after the deal closed. For one thing, they claimed, Alpha had already negotiated a discounted price for Massey because of Massey’s bad safety record. And for another, Cravath had built indemnification for Massey defendants into the Alpha merger agreement. If Alpha sued the Massey directors and officers, the shareholders argued, it would in essence be suing itself. 

Strine took a hard look at Cravath’s work for Massey—and found Massey’s board and its Cravath counsel to have been in an “awkward” situation. When shareholders filed their derivative suit against Massey directors and officers after the 2010 mine collapse, the defendants brought in Cravath as defense counsel. Then when Massey began negotiating a deal with Alpha, the board engaged Cravath as a deal adviser. In the course of advising the board, Cravath offered advice about the ongoing derivative case, in which the board members were defendants. Strine concluded Cravath wanted to make sure the board “considered the merger without regard to its effect on themselves” as defendants in the derivative suit. 

 But because Cravath was also defense counsel, Strine wrote, “it was therefore an awkward source of advice for the board in considering what consideration, if any, to give to the derivative claims in negotiating a merger.” The board should have consulted independent counsel, Strine said. Instead, its approach “fell short of the idea and might even arguably be characterized as a breach of the duty of care,” he wrote. 

 Nevertheless, that didn’t mean there was reason to believe Alpha wouldn’t pursue the derivative suit, in Strine’s view. “Alpha has to deal with all of the disaster fall-out and Massey’s unique approach to dealing with regulators,” the Vice-Chancellor wrote. “This will almost certainly require Alpha to pay settlements, fines, and remediation costs. To the extent that the direct actions and Massey result in findings that Massey, as a corporation, consciously violated the law, Alpha has a rational incentive to shift as much of that liability to the former Massey directors and officers as can efficiently and realistically be achieved.” Strine found the deal agreement’s indemnification provisions, contrary to shareholders’ assertions, doesn’t extend to “wrongful acts,” and so wouldn’t dissuade Alpha from pursuing the derivative suit. 

 Shareholders lawyer Grant has some problems with Strine’s interpretation. “If you believe that, you might as well believe in the Easter Bunny, Santa Claus, and the Tooth Fairy,” he said. “These claims will never see the light of day….You think [the indemnification provisions] were an accident? You think Cravath didn’t know just what they were doing? Alpha would be suing itself.” 

 OTC reached out to Stuart Gold of Cravath and Kevin Abrams of Abrams & Bayliss, who argued for the Massey defendants at last week’s hearing before Strine. Gold sent back an e-mail declining comment. 

 (Reporting by Alison Frankel)