Debt to the moon. In recent months West Virginia Governor Jim Justice has sued lenders who have … [+]
ASSOCIATED PRESS
In a remarkable lawsuit filed on Memorial Day, West Virginia Gov. Jim Justice — the former coal-mining billionaire — has accused his family’s longtime lender Carter Bank & Trust of orchestrating a “tortious scheme” that has thrown the solvency and future of his business empire into jeopardy.
What does Justice, his family, and companies allege? That Carter Bank, over nearly 20 years, loaned them more than $700 million, then had the gall to expect to be paid back on time.
According to Justice’s complaint, bank executives acting in bad faith purposefully “induced” his companies to default on loans (rather than continue to extend-and-pretend).
In what’s potentially the most dramatic development, Justice accuses Carter Bank of attempting to “scuttle” his attempts at renegotiating terms on millions of dollars of loans owed by his Greenbrier Hotel, which came due June 1. That’s just one day after he filed the lawsuit.
Unless Justice managed to line up emergency funding on Memorial Day, it’s plausible that the Greenbrier — once West Virginia’s grandest resort, with more than 500 rooms — could now be in default to Carter Bank. All told, Justice says in his complaint that he still owes Carter Bank $368 million.
It’s hard to imagine that Justice could easily find new willing lenders. Earlier this year he sued Greensill Capital — which in recent years has extended Justice more than $700 million in loans — after it too refused to keep giving Justice more money.
The situation remains murkey, and Carter Bank (Nasdaq: CARE) has not yet responded to the Justice allegations. But given the “cross-default, cross-collateralization guarantees, waivers and releases” that Justice claims Carter Bank forced him to agree to in recent years, the default of one of these Justice entities could imply default of the entire Justice business empire, including numerous coal mines, farms, and other ventures.
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State of West Virginia
Everything changed, alleges Justice, after the 2017 death of Worth Harris Carter, Jr., whom Justice claims was his trusted family banker since floating an initial $4.5 million real estate loan in 2001.
“Worth Carter took an informal and personal approach with the Justice Entities,” says Justice, which involved “the handshake first, documents second.”
In 2003 Worth loaned $12 million to Justice mining company Dynamic Energy. By 2008 Justice had $70 million in loans with Carter, with 20-year amortizations at rates of less than 5%. In 2009, when Justice sold his metallurgical coal company, Bluestone, to a Russian company Mechel, he deposited several hundred million dollars with Carter Bank. But instead of paying off existing loans with those funds, Justice says he borrowed more from Carter — including a $50 million loan in 2009 when he bought Greenbrier out of bankruptcy, and $170 million in 2011, which funded acquisitions of farmland.
Then came bad times for the coal business. Says Justice in his complaint: “Worth Carter was very clear that Carter Bank would loan additional funds to the Justice Entities to cover operating losses to weather what was hoped to be a temporary decline in the coal industry.”
In 2015 Carter loaned $400 million to Justice mining companies, and by 2016 Justice owed Carter a total of $775 million. The case for coal has only deteriorated since then.
Carter died in 2017, “leaving in his wake a legacy of close-knit, trust-backed banking relationships,” which the bank has not continued, says Justice’s complaint.
The bank’s new leaders apparently were not satisfied with a Justice handshake or the quality of his collateral, and who can blame them, given the governor’s long history of welshing on obligations and environmental fines.
In October 2017, the bank allegedly sent Justice a notice of default over a $1.9 million missed loan payment owed by his coal companies. This accelerated repayment of $268 million in loans, which Carter bank declined to renegotiate.
Justice alleges that through a “tortious scheme” involving “deceptive practices,” the bank “induced a default and laid the groundwork to continue squeezing the plaintiffs.”
He did manage to find fresh funding elsewhere; in recent years Justice and his companies borrowed more than $700 million from embattled and bankrupt supply chain financial Lex Greensill and his Greensill Capital. Justice has sued Greensill as well.
Since Carter’s death, Justice has paid down debts to the bank from $740 million to what he says now is $368 million.
His lawsuit seeks damages of $421 million from Carter Bank, to which he claims to have paid $238.5 million over the years in interest and fees.
Bank executives, he says, have “refused to engage at any level” in negotiating new terms, and only want to communicate via attorneys. A bank spokesperson declined to comment on the lawsuit.
Forbes earlier this year reevaluated estimates of Justice’s fortune, and has removed him from the ranks of global billionaires where estimates of his net worth had years earlier reached as high as $1.8 billion.
The case, in U.S. district court in the Southern District of West Virginia is styled Bellwood Corp. vs. Carter Bank & Trust.
