Leo E. Strine Jr. has often lamented institutional investors' disinterest in corporate governance. Institutions may clamor for companies to remove their poison pills and give shareholders a say on pay, but pension funds and mutual funds almost never nominate their money managers to serve on corporate boards.

Strine's skepticism may have colored his view of a recent case in which shareholders of Massey Energy Co. sought to enjoin a vote on the coal company's $8.5 billion sale to Alpha Natural Resources Inc. Massey has had a series of serious mining accidents over the years, for which former CEO Don Blankenship was largely unrepentant. In April 2010, an explosion at Massey's Upper Big Branch Mine killed 29 miners. Numerous lawsuits followed, including one in Delaware in which shareholders claimed that Blankenship and the other Massey board members should be personally liable to the company for the decline in the company's stock caused by their failure to comply with safety regulations. The case was brought as a derivative suit, one in which shareholders pursue a claim against individual directors or officers on behalf of the corporation. The plaintiffs claimed that Massey's board engineered the sale to protect themselves from personal liability arising from the derivative suit.

Strine rejected the claim and allowed the Massey shareholder vote on the deal to proceed. Stuart Grant, a partner at Wilmington's Grant & Eisenhofer PA and the plaintiffs' lawyer in the case, was furious. "This ruling has me totally disgusted," Grant told Bloomberg after the decision came down on May 31. "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 Don Blankenship, you can't win. 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."

But such a view is simplistic, Strine suggested in a long footnote. Massey's poor record of compliance with mine safety laws was well known, and yet shareholders continued to elect directors who backed Blankenship. "The primary protection for stockholders against incompetent management is selecting new directors," the judge wrote. In cases such as Massey, Strine continued, "[i]t may be that if stockholders come out a bit worse, then justice is in fact done. Remember that to the extent that Massey kept costs lower and exposed miners and the environment to excess dangers, Massey's stockholders enjoyed the short-term benefits in the form of higher profits."

Strine went on: "Stockholders, especially given the short-term nature of holding periods that now predominate in our markets, have poor incentives to monitor corporate compliance with laws protecting society as a whole and may well put strong pressures on corporate management to produce immediate profits."

Strine was also displeased with how the Massey board evaluated the claims. Last August, the Massey board added Linda Welty and Robert Holland III as members, in part to advise the board on how it should treat the derivative claims. Welty and Holland in turn hired Weil, Gotshal & Manges LLP for advice, while the board had already tapped Cravath, Swaine & Moore LLP in May as counsel on the derivative actions.

Cravath was also Massey's corporate counsel on the auction. The firm told directors that they should "assume that the derivative claims would survive" in a merger and "that such survival should not play any role -- one way or the other -- in [the board's] deliberations about whether or not to approve a potential business transaction." That was fine as far as it went, but Strine criticized the law firm for not asking Welty, Holland and their counsel at Weil about the potential value of the derivative claims, which were a corporate asset.

But Strine himself suggested the claims might well be worthless. He considered them in tandem with Massey's considerable potential liabilities rather than as an independent asset, and he noted that Alpha might rationally decide not to pursue the claims. Even if it does so, the claims' value is impossible to estimate, and would quite possibly be immaterial in the context of an $8.5 billion transaction.

All of this is a strong hint to Alpha that Strine isn't much interested in Grant's case, for reasons the judge made clear at the end of his footnote on corporate governance.

Strine wrote that the losses the Massey shareholders suffered because of the Upper Big Branch Mine explosion "might be thought to act as a useful goad to stockholders to give more weight to legal compliance and risk management in making investment decisions and in monitoring corporate performance." Massey's workers and their families rather than the company's shareholders were the true victims of the disaster, Strine concluded, and any claims against Blankenship should belong to them.

See the complete archives of Safe Harbor

David Marcus is senior writer at Corporate Control Alert.