Daniel B. Lowe v. Veris Gold USA, Inc. and Jerritt Canyon Gold, LLC

Plain-English summary

Daniel Lowe sought to add several Whitebox and Sprott entities and individuals as successors liable for discrimination committed by Veris Gold. Judge William B. Moran had already added Jerritt Canyon Gold, the purchaser and new mine operator, but found the existing assertions insufficient to decide whether the other proposed parties were successors. He held that the Commission had jurisdiction to decide successorship and that Lowe was entitled to use discovery to investigate ownership, management, employee continuity, mine operations, notice of the claim, and the bankruptcy sale. Counsel for the Whitebox entities was ordered to provide service addresses within 10 days so discovery could proceed. The judge denied expedited consideration and the proposed parties' requests for attorney fees.

Decision snapshot

• Governing rules: 29 C.F.R. §§ 2700.56(b) and 2700.58
• Outcome: Discovery on additional successor entities was authorized, and their counsel was ordered to provide service addresses.
• Key point: Allegations of common ownership and operational continuity must be developed through evidence before additional entities can be held liable as successors.

Full text (FMSHRC public release)

FEDERAL MINE SAFETY AND HEALTH
REVIEW COMMISSION

OFFICE OF
ADMINISTRATIVE LAW JUDGES

1331 PENNSYLVANIA
AVE., N.W., SUITE 520N

WASHINGTON, DC
20004-1710

TELEPHONE:
202-434-9933 / FAX: 202-434-9949

April 8, 2016

DANIEL B. LOWE,

Complainant,

v.

VERIS GOLD USA, INC.,

and

JERRITT CANYON GOLD, LLC,

Respondents.

DISCRIMINATION PROCEEDING

Docket No. WEST 2014-614-DM

WE-MD 14-04

Mine: Jerritt Canyon Mill

Mine ID: 26-01621

ORDER ON
COMPLAINANT’S MOTION TO AMEND TO ADD VARIOUS WHITEBOX ENTITIES AS PARTIES

Before:                        Judge
Moran

Complainant Daniel Lowe has filed a
motion to amend his original complaint “so as to join ‘Whitebox Entities’ to
include Whitebox Asset Management, Whitebox Advisors LLC, Wbox 2014-1 Ltd.,
Jerritt Canyon Gold, LLC,[1]
Sprott Mining Inc., and Eric Sprott as successors in interest to Veris Gold USA
Inc.” Mot. to Deny “Whitebox Entities” Contest of Jurisdictional Authority and
Mot. to Deny “Whitebox Entities” Mot. Regarding Compl’t’s Mot. to Amend at 1
(“Lowe Response”); see also Mot. to Amend and Mot. for Expedited
Consideration at 1.

Following
that motion, on February 16, 2016, counsel on behalf of the Whitebox Entities
(“Whitebox Counsel”) filed a Special Limited Appearance to contest this Court’s
jurisdiction and to challenge whether the Court can attach liability against
the parties Lowe wishes to join for the acts of discrimination against Lowe
committed by Veris Gold USA, Inc. (“Veris Gold”). The Court actually received
Lowe’s response on February 8, 2016, prior to receiving Whitebox Entities’
response. Thereafter, on February 19, 2016, Whitebox Counsel also filed a sur-reply.
Lowe then filed a response to the sur-reply.

For the reasons which follow, the Court
holds that it has jurisdiction to determine if other entities may be added as
successors in interest, but that there is insufficient information in the
record to make such a determination and that discovery may be had in furtherance
of resolving those issues.[2]

Successorship
Basics

The Commission has recognized that, in
certain cases, the imposition of liability on a successor is appropriate. Munsey
v. Smitty Baker Coal Co., Inc., 2 FMSHRC 3463 (1980), aff’d in part,
rev’d in part sub nom. Munsey v. FMSHRC, 701 F.2d 976 (D.C. Cir.
1983); Sec’y of Labor on behalf of Corbin v. Sugartree Corp., 9 FMSHRC
394 (Mar. 1987), aff’d sub nom. Terco v. FMSHRC, 839 F.2d 236
(6th Cir. 1987).

In Secretary of Labor on behalf of Keene
v. S&M Coal Company, Inc., 10 FMSHRC 1145 (Sept. 1988), the Commission
noted that in

the
cases in which the Commission and the courts have found successorship liability
there has been some type of transaction (a “transactional element”) with
respect to the business between the predecessor and the entity against which
liability is being asserted and/or there has been a continuation of activity at
the predecessor’s site. In Munsey, supra, for example, the
company that was held liable as a successor had acquired leases and mining
equipment from the former employer, substantially replacing the predecessor’s
operation. Similarly, in Terco, supra, successorship liability
attached because there was substantial continuity of business interests at the
same site.

Id.
at 1152.

The Commission then observed that

[a]ssumption
of the predecessor’s position by the successor underlies the successorship
cases. For example, in Wiley & Sons v. Livingston, 376 U.S. 543
(1964), successorship was found where the predecessor company was merged into
the acquiring company, a process that also involved the wholesale transfer of
the predecessor’s employees to the successor. The Court observed that for an
employer to be considered a successor, there must be a substantial continuity
in the identity of the business enterprise before and after a change. Wiley,
supra, 376 U.S. at 551. Another example of the acquisition element
underlying these cases can be found in Golden State Bottling Co. v. NLRB,
414 U.S. 168, (1973) which involved a bona fide purchase of a company that had
committed an unfair labor practice. Issuance of a reinstatement and back-pay
order was upheld against the acquiring company, which occupied the site where
the unfair practice had occurred.

Id.

Clearly, the “transactional element,” at
least as to Jerritt Canyon Gold, LLC, (“JCG”) has been conceded. This led to
the Court’s determination adding that entity as a Respondent in its March 14,
2016, Order. See Order on Compl’t’s Mot. to Amend, Mar. 14, 2016. Whether
other entities may be shown to have such transactional elements, and therefore
be added as successors, is a subject of this Order, though, as explained below,
conclusions about the status of those entities are not presently possible.

Apart from determining if a company occupies
the position of a successor is the separate issue of determining whether such a
successor should be liable to remedy the unlawful discrimination of its
predecessor. For that determination, the Commission has followed the courts and
has approved consideration of nine specific factors:

(1)
whether the successor company had notice of the charge, (2) the ability of the
predecessor to provide relief, (3) whether there has been a substantial
continuity of business operations, (4) whether the new employer uses the same
plant, (5) whether he uses the same or substantially the same work force, (6)
whether he uses the same or substantially the same supervisory personnel, (7)
whether the same jobs exist under substantially the same working conditions,
(8) whether he uses the same machinery, equipment and methods of production and
(9) whether he produces the same products.

Keene,
10 FMSHRC at 1153 (quoting Munsey, 2 FMSHRC at 3465-66).

The Commission has further noted that

the
key factor for determining successorship liability is whether there is a
substantial continuity of business operations. This question is fact intensive
and must be resolved on a case-by-case basis. Howard Johnson, Inc. v.
Detroit Local Joint Executive Board, 417 U.S. 249, 256 (1974). In Sugartree,
9 FMSHRC at 398, the Commission emphasized that factors (3) through (9) provide
the framework for analyzing whether there is a continuity of business
operations and work force between the successor and its predecessor.

Id.
(citing Munsey, 2 FMSHRC at 3467; Sugartree, 9 FMSHRC at 398).

Similarly, in Secretary of Labor on
behalf of Zambonino v. Colonial Mining Materials, LLC, 36 FMSHRC 1239 (May
2014) (ALJ), an administrative law judge determined a mine operator was a
successor and liable for the complainant’s termination. That judge noted that
in Golden State Bottling Co., Inc. v. NLRB, 414 U.S. 168 (1973), the
Supreme Court determined that

the
successor company acquired the predecessor with notice of unfair labor practice
litigation, and continued the business without substantial interruption or
change in operations, employee or supervisory personnel, [and then] upheld the
Board’s order requiring the successor to reinstate with back-pay an employee
discharged by the predecessor company. Both companies were held jointly and
severally liable for the back-pay award.

Zambonino,
36 FMSHRC at 1259 (emphasis added).

The judge took note that the Supreme Court
also expressed that

[t]o
further the public interest involved in effectuating the policies of the Act
and achieve the ‘objectives of national labor policy, reflected in established
principles of federal law,’ we are persuaded that one who acquires and operates
a business of an employer found guilty of unfair labor practices in basically
unchanged form under circumstances which charge him with notice of unfair labor
practice charges against his predecessor should be held responsible for
remedying his predecessor’s unlawful conduct.

‘In
imposing this responsibility upon a bona fide purchaser, we are not unmindful
of the fact that he was not a party to the unfair labor practices and continues
to operate the business without any connection with his predecessor. However,
in balancing the equities involved there are other significant factors which
must be taken into account. Thus, ‘It is the employing industry that is sought
to be regulated and brought within the corrective and remedial provisions of
the Act in the interest of industrial peace.’ When a new employer is substituted
in the employing industry there has been no real change in the employing
industry insofar as the victims of past unfair labor practices are concerned,
or the need for remedying those unfair labor practices. Appropriate steps must
still be taken if the effects of the unfair labor practices are to be erased
and all employees reassured of their statutory rights. And it is the successor
who has taken over control of the business who is generally in the best
position to remedy such unfair labor practices most effectively. The imposition
of this responsibility upon even the bona fide purchaser does not work an
unfair hardship upon him. When he substituted himself in place of the
perpetrator of the unfair labor practices, he became the beneficiary of the unremedied
unfair labor practices. Also, his potential liability for remedying the unfair
labor practices is a matter which can be reflected in the price he pays for the
business, or he may secure an indemnity clause in the sales contract which will
indemnify him for liability arising from the seller’s unfair labor practices.’

Id.
at 1260 (quoting Golden State Bottling, 414 U.S. at 171 n.2 (quoting
Perma Vinyl Corp., 164 N.L.R.B. 968 (1967) (footnotes omitted), enforced
sub nom., U.S. Pipe and Foundry Co. v. NLRB, 398 F.2d 544 (5th Cir.
1968))).

The
Motion and Responses

Lowe’s
Motion to Amend[3]
states that Veris Gold began its bankruptcy proceeding in June 2014, which was
after Lowe had filed his discrimination complaint in November 2013. Mot. to
Amend 1-2. Lowe asserts that

Jerritt
Canyon Gold LLC, Whitebox Advisors LLC, Sprott Mining Inc., and Eric Sprott had
knowledge of the Complainant’s discrimination action before the Commission
because Jerritt Canyon Gold LLC . . . [was] represented by the same law firm as
Veris Gold USA Inc., Goicoechea, Di Grazia, Coyle and Stanton, Ltd., and in
particular both were represented by Attorney David M. Stanton.

Id.
at 4. Lowe adds that “[a] business filing with the State of Nevada – Secretary
of State’s Office filed on June 9, 2015 states that the age of the company,
Jerritt Canyon Gold LLC., was 4 months old,” and Lowe therefore contends that
“Jerritt Canyon Gold LLC., had been [in] operation since March of 2015 and that
the Registered Agent was the law firm of Goicoechea, Di Grazia, Coyle and
Stanton, Ltd.” Id. at 4-5.

The
motion asserts that

[t]here
has been a 100 % continuity of business operations between Veris Gold USA Inc.
and Jerritt Canyon Gold LLC, Whitebox Advisors LLC, Sprott Mining Inc., and
Eric Sprott. The same surface mill has operated without any hiatus by Jerritt
Canyon Gold LLC, Whitebox Advisors LLC, Sprott Mining Inc., and Eric Sprott.
Jerritt Canyon Gold LLC, Whitebox Advisors LLC, Sprott Mining Inc., and Eric
Sprott are engaged in all of the exact same operations (crushing, screening and
processing gold ore) as Jerritt Canyon Gold LLC, Whitebox Advisors LLC, Sprott
Mining Inc., and Eric Sprott use the exact same equipment.

Id.
at 5.

As to this assertion, the Court would
observe that Complainant is making allegations in support of his claim
that the parties he wishes to add are successors. The Court notes that with its
previous order, issued March 14, 2016, Jerritt Canyon Gold, as the acknowledged
new owner of the Jerritt Canyon Mill, has been added as a party. However, as to
the other entities and individuals Complainant seeks to add, Complainant
apparently does not realize that his assertions about their involvement with
Jerritt Canyon Gold, and previously with Veris Gold, are not evidence of such
claims. Instead, evidence to support Lowe’s claims about the relationship of
those other entities and individuals with Veris Gold and JCG must be
established. Discovery is the initial means to learn about the nature of the
relationship of those other entities and individuals with Veris Gold and JCG. Discovery
vehicles include official records, requests for admissions, interrogatories,
stipulations, and depositions.

Complainant also asserts that

[t]he
vast majority of Jerritt Canyon Gold LLC’s employees are all former Veris Gold
USA Inc.’s employees and are engaged in the same types of job classifications
as they were when they worked for Veris Gold USA Inc. The transfer from one
company to the other is likened to flipping a light switch at the time of the
sale date. At the stroke of midnight all to the Veris Gold USA Inc.’s employees
became Jerritt Canyon Gold LLC’s employees with a very minor exception of less
than approximately five employees. According to a local newspaper article the
number of employees effected [sic] in the transfer of ownership was
approximately 400 employees.

Mot.
to Amend 5-6. This assertion is also not evidence.

The same deficiencies exist with regard to
items 6 through 9 of Complainant’s Motion; they are assertions of the claims
made in those items, not evidence thereof.[4]
See id. at 6.  

The
Court has urged Complainant, following the determination that he was
discriminated against by Veris Gold, to make efforts to find legal counsel in
support of his efforts to establish that these various entities should be
determined to be successors and to present a well-founded claim for his
submission of damages. It again urges Complainant to make efforts to secure
legal counsel. While retaining counsel would not assure a successful outcome,
it can be stated with some confidence that continuing to proceed without such
counsel, in these complex legal matters, presents a disadvantage. The Court will
not, and cannot, act as if it were Complainant’s attorney in fact, as the Court
cannot operate in such dual, and conflicting, roles. Discovery and how to
conduct it effectively are Complainant’s burdens.

Further, it is difficult for the Court to
appreciate why such efforts to obtain legal counsel have apparently not been
made, as Complainant has a judgment of discrimination in hand and attorney’s
fees would be recoverable for the efforts to hold a successor liable, if such
attorney is successful in that effort. Such attorney’s fees would not diminish
the recovery of the respondent’s damages at all, as they are a separate line
item for a respondent’s damages in discrimination claims. However, the Court is
not suggesting that Complainant retain an attorney on a fee basis, as
the cost would be prohibitive and the final outcome remains uncertain. Another
arrangement would be on a contingency basis under which the attorney would be
able to file for such attorney’s fees plus be entitled to a share of any damages.
These are matters for Complainant and an attorney to work out, not the Court. The
benefit for Complainant would be having the expertise and skill provided by
legal counsel.

The
Court will now address the responses from “the Whitebox Entities,” as provided
through the limited appearance of its counsel, the law firm of Fennemore Craig,
P.C.

The “Whitebox Entities,” which are defined
in counsel’s response as Whitebox Asset Management, Whitebox Advisors LLC, WBox
2014-1 Ltd, and any other Whitebox entity or individual including Jacob Mercer
and Jeff Sterling, assert that the Whitebox Entities did not purchase any of
assets of Veris Gold, and do not operate the Jerritt Canyon Gold mine or mill. Special
Limited Appearance on Behalf of Whitebox Entities to Contest Jurisdiction in
Resp. to ALJ’s Order Regarding Sec’y’s Mot. for Reconsideration and Compl’t’s
Mot. to Amend at 1 (“Whitebox Response”).

The Response maintains that the Whitebox
Entities had no involvement with Debtor Veris Gold entities[5]
prior to filing of bankruptcy proceedings on June 9, 2014; were not creditors
or equity holders of Veris Gold entities; and were not officers, directors, or
control persons of Veris Gold entities. Id. at 2. Jerritt Canyon Gold,
LLC, was the purchaser of Veris Gold’s assets. Id. However, the Response
relates that “WBox 2014-1 Ltd.” loaned $12 million to Veris Gold for “their
post-petition operations.” Id.

The Response then identifies Deutsche Bank
as the “first position secured creditor” of the debtors, and informs that the bank
declined to advance funds to keep the debtors in business, post-petition.[6] Id. The
Response then asserts that post-petition financing was approved by bankruptcy
courts around October 6, 2014, with WBox 2014-1 Ltd. loaning $12 million to the
debtors, then increasing that loan to $15 million in May 2015, secured by a
“first position priming lien” on all of debtors’ assets. Id. The
recounting of events by the Response then informs that the sale process was
approved in November 2014, but no buyer was found. Id. Following that,
the Response advises that WBVG LLC, an affiliate of WBox 2014-1 Ltd,
made an offer to purchase Veris Gold assets and after notice and hearing,
that sale was approved. Id. at 2-3. Thereafter, WBVG LLC changed its
name to Jerritt Canyon Gold LLC. Id.

The Response further asserts that
Complainant had notice of Veris Gold’s bankruptcy, both actual and
constructive. Id. at 3. The Response states written notice was given in
the Sale Motion and hearing and also in the notice of entry of sale order in
June 2015. Id. As to the written notice given in the Sale Motion and
hearing, the Response, pointing to Paragraph G of the Sale Order, advises that the
order found that “the Secretary of Labor, Inspector of Mines, EEOC, MSHA and
OSHA and any known claimants that have asserted Claims against the Debtors were
given actual notice of the Sale Motion and hearing.” Whitebox Resp. 3. It is
not clear that Complainant was one of those known claimants given actual
notice.[7]

The Response then points to the Sale Order
and its statement that

[t]he
transactions contemplated under the Agreement do not amount to a consolidation,
merger or de facto merger of the Purchaser and the Debtors and/or the Debtors’
estates, there is not substantial continuity between the Purchaser and the
Debtors, there is no common identity between the debtors and the Purchaser,
there is no continuity of enterprise between the Debtors and the Purchaser, the
Purchaser is not a mere continuation of the Debtors or their estates, and the
Purchaser does not constitute a successor to the Debtors or their estates.

Whitebox
Resp. 4 (quoting Sale Order at 9, In re Veris Gold Corp., No.
14-51015-gwz (Bankr. D. Nev. June 4, 2015), ECF No. 318 [hereinafter “Sale
Order”]).

Thus, the Purchaser and Debtors happily
agreed that none of the factors which would point toward a successorship were
present. This Court would be surprised to learn that the bankruptcy courts
engaged in any detailed review of those claims. Rather, they more likely
accepted in good faith that those representations were made to them in good
faith and grounded in fact, as opposed to being mere assertions. As mentioned
in its Order of March 14, 2016, it is this Court’s understanding that bankruptcy
courts of necessity rely upon the representations of the parties and the
monitor. Depending upon what is learned about the relationships between Veris
Gold, Jarrett Canyon Gold, the Whitebox Entities, and the various individuals
who may have commonality among those enterprises, the bankruptcy courts may
have been misled.[8]

Further, a case such as this lays bare the
problems identified by the law review commentaries when 11 U.S.C. § 363(f)
proceedings supplant those brought under § 1141(c), despite the former’s
narrower language and the absence of the procedural protections which are
available under the latter, all as cited in the Court’s previous Order on
Complainant’s Motion to Amend, issued March 14, 2016. For example, if through
discovery, it is shown that there are individuals who had financial or
management interests in Veris, Jarrett Canyon Gold and/or the Whitebox
Entities, such linkage could be troublesome and point to the appropriateness of
holding others accountable as successors.

As if the foregoing proclamations advanced
by the Response were not enough, the Response then lards:

Furthermore,
Paragraph 38 of the Sale Order concludes that there is no “successor”
liability as to the Purchaser. The sale was free and clear of any successor
liability. [The Sale Order] expressly rules: . . . The
Purchaser is not a “successor” to the Debtors or their estates by reason of any
theory of law or equity, and the Purchaser shall not assume, nor be deemed to
assume, or in any way be responsible for any liability or obligation of any of
the Debtors and/or their estates including, but not limited to, any bulk sales
law, successor liability, transferee liability, derivative liability, vicarious
liability or any other liability or responsibility of any kind or character for
any Liens, Claims, or Interests against the Debtors or against an insider of
the Debtors, or similar liability except as otherwise expressly provided in the
Agreement, whether known or unknown as of the Closing, now existing or
hereafter arising, fixed or contingent, asserted or unasserted, or liquidated
or unliquidated.

Whitebox
Resp. 4 (emphasis added) (footnote omitted) (quoting Sale Order at 21).

Though the above language crafted by the
purchaser and debtor would seem to have created an insurmountable barrier to
successorship claims, that is, if one accepts the lawyering employed and
disregards due process concerns and the issues concerning the propriety of
using § 363, instead of § 1141(c), additional barriers were nevertheless employed.
Paragraphs N and Q of the Sale Order provide that the term “claims” captures
successor or transferee liability and that the parties would not have entered
into their agreement if the purchaser acquired the property with such claims. Id.
at 5.

Even with that, more efforts to protect
against such claims were layered onto those already described, as the Response
then points to Paragraph 39 of the Sale Order. That paragraph lists, in the
fashion employed by the other provisions, just discussed, any other conceivable
soul[9] as
being “forever barred, estopped and permanently enjoined from asserting,
prosecuting or otherwise pursuing such Liens, Claims, or Interests . . .
against the Purchaser or any affiliate, successor or assign thereof, or the
Assets.” Id. at 5 (quoting Sale Order at 21).

The
Response concludes with the assertion that only the U.S. Bankruptcy
Court can address the issues raised by the Complainant and that this Court has
no jurisdiction over the Whitebox Entities. Yet, while asserting that this
Court has no jurisdiction, Whitebox simultaneously requests attorneys’ fees and
costs for having to file its response. Id. at 6. The request for
attorneys’ fees is DENIED.

Subsequent
to its Response, the Whitebox Entities then filed a Special Limited Appearance
on Behalf of Whitebox Entities for Sur Reply to Complainant’s Motion to Amend
(“Whitebox Sur-reply”). For the most part, the Sur-reply reasserts its previous
arguments or those made by Jarrett Canyon Gold in its responses. These include
the claim that this Court has no jurisdiction over successorship vis-à-vis
findings of Mine Act discrimination. Whitebox Sur-reply 1-2. Again, the Sur-reply
from the Whitebox Entities points to the Order Approving the Sale. However,
regarding that Order Approving Sale, through the process of discovery, as
conducted by Complainant, not the Court, it is necessary to learn who drafted
the Order approving the sale, the date that order was presented to the court(s),
the circumstances of that presentation, including the party or parties who
presented the Order to such bankruptcy court(s), the parties present at that
presentation, the record, including any transcripts, of any inquiry between the
bankruptcy court(s) and those presenting the Order for the courts’ approval,
whether this occurred only by written submissions or through a hearing, if any
hearing in fact occurred, and the date the Order was approved.

The
Whitebox Entities repeat that they are not “miners, operators, or employers
that fall within the definitions and jurisdiction of FMSHA.” Whitebox Sur-reply

2. But, they admit that “WBox 2014-1 Ltd. owns 20% of the membership interest
   [which the Sur-reply characterizes as analogous to 20% shareholder of a
   corporation] in Jerritt Canyon Gold, LLC, not the assets.”[10] Whitebox Sur-reply 3.
   In this regard, the Sur-reply contends that

the
Whitebox Entities did not purchase, do not have title to and do not own any of
the assets previously owned by Veris Gold, do not operate the mine or mill
previously operated by Veris Gold and do not employ any employees previously
employed by Veris Gold at the mine or mill [and that] . . . [t]here are no
facts or law that could be used to find or conclude that any of the Whitebox
Entities are the successor of Veris Gold.

Id.
at 2 (emphasis added). The Court agrees with the last quoted statement but
adds the important qualifier, “at least for now.” This is because, until
discovery occurs, a definitive statement about that claim cannot be made.

The
Sur-reply then speaks to the role of Jacob Mercer, described as a manager of
Jerritt Canyon Gold, LLC, and states that being a manager or a member of a
limited liability company does not make such a person liable for the debts or
obligations of such a company. Id. at 3-4. The balance of the Sur-reply
repeats previous contentions and concludes with the assertion that Nevada
common law is to be applied to determine successor liability and that such
state law does not speak to the issue of whether a member or manager of a
purchaser would be subject to such liability as a successor.[11] Id. at 4-5.

Lowe
filed a short response to the Whitebox Sur-reply, asserting that the Mine
Safety and Health Review Commission has the final jurisdictional authority in
this matter, not the United States Bankruptcy Court. Lowe’s response admits that
he did not appeal the bankruptcy court’s adverse ruling to his motion to stay
the sale, but stated that “[o]nce denied there was nothing new to provide to
the Bankruptcy Court where a reasonable and prudent person could believe that
they could reasonably prevail and therefore no appeal was made.” Compl’t’s
Reply to Resp’t’s “Sur Replay” at 3 (“Lowe Resp. to Sur-Reply”).

Discussion

In order to determine the appropriate
parties potentially to be added as successor entities and to determine if
liability as successors is warranted, it is necessary to pull back the covers,
so to speak, in order to fully understand the relationship(s), if any, between
Jarrett Canyon Gold, the “Whitebox Entities,” Veris Gold, and the owners of
those entities, in order to determine if they share common identities. This is
a purpose of discovery, which the complainant is entitled to utilize.

Commission Procedural Rule 56(b) states that
“[p]arties may obtain discovery of any relevant, non-privileged matter that is
admissible evidence or appears likely to lead to the discovery of admissible
evidence.” 29 C.F.R. § 2700.56(b) (“emphasis added”). That provision allows
parties to use depositions, written interrogatories, requests for admissions,
and requests for documents or objects to obtain such information. A party
served with interrogatories and requests for production must answer within 25
days of service and must state the basis for any objections in its answer. 29
C.F.R. §§ 2700.58(a), (c).

In addition, it has also been observed that:

[f]or
procedural questions not regulated by the [Mine] Act, [the Commission’s]
Procedural Rules, or the Administrative Procedure Act,” the Federal Rules of
Civil Procedure guide Commission Judges as “far as practicable.” 29 C.F.R. §
2700.1(b). Guidance, though, does not require strict adherence. See Rushton Mining
Co., 11 FMSHRC 759, 765 (May 1989) (observing “[Commission] Procedural Rule
1(b) reserves to the Commission considerable discretion in deciding whether and
to what extent it is to be ‘guided’ by a particular Federal Rule of Civil
Procedure.”)

Like
the Commission's rules, the Federal Rules of Civil Procedure establish a broad
discovery regime. See Schlagenhauf v. Holder, 379 U.S. 104, 114-15
(1964) (“We enter upon determination of this construction with the basic
premise ‘that the deposition-discovery rules are to be accorded a broad and
liberal treatment’ to effectuate their purpose that ‘civil trials in federal
courts no longer need to be carried on in the dark.’”) (quoting Hickman v.
Taylor, 329 U.S. 495, 501, 507 (1947)). Notwithstanding recent changes
intended to involve courts’ fine tuning of overabundant discovery, Federal Rule
26(b)(1) continues to authorize parties to “obtain discovery regarding any
nonprivileged matter that is relevant to any party’s claim or
defense--including the existence, description, nature, custody, condition, and
location of any documents or other tangible things and the identity and
location or persons who know of any discoverable matter.” Fed. R. Civ. P. 26(b)(1).
Like the Commission’s rules, the Federal Rules’ regime also specifies that
“[r]elevant information need not be admissible at the trial if the discovery
appears reasonably calculated to lead to discovery of admissible evidence.”

Greyeagle
Coal Co., 35 FMSHRC 3321, 3324 (Oct. 2013) (ALJ).

The
Way Forward

The information provided by both sides on
the issue of determining which entities, (beyond Jarrett Canyon Gold, which was
added as a party pursuant to the Court’s March 14, 2016, Order),[12] may be considered
as successors, has largely consisted of assertions. Complainant, it would seem,
has two options. One is to pursue only Jarrett Canyon Gold to establish that
entity as a successor to Veris Gold. The other would be to learn more about the
various other entities Complainant believes should also be deemed as
successors. Under both approaches, discovery needs to occur, beginning with the
basics by Complainant seeking information from those entities, to include the
identification all the owners of Veris Gold, its officers, the management
individuals running that mine, and stockholders, and then seeking the same
identifying information from each of the Whitebox Entities, including WBVG LLC,
an affiliate of WBox 2014-1 Ltd, which later changed its name to Jerritt Canyon
Gold LLC. There needs to be a full understanding of the various entities,
including the individuals which embody and comprise them, all with the purpose
of ascertaining if there are threads of commonality between some or all of
those entities as, for example, if names associated with Veris Gold reappear
with Jarrett Canyon Gold and the Whitebox Entities. If such commonalities
appear, this would tend to show that the sale of Veris was not an arms-length
transaction. If present, given that Veris was trying to avoid being saddled
with a pattern of violations designation by MSHA not long before opting for
bankruptcy and was also facing multiple discrimination claims, see Varady
v. Veris Gold USA, Inc., 37 FMSHRC 2037, 2050 (Sept. 2015) (ALJ), such
relationships could be considered in evaluating successorship claims.

Based upon the Court’s comments to the
Response, supra, one would anticipate that Complainant would also want
to discover a host of details such as the dates of bankruptcy court hearings,
the participants in such hearings, the parties given notice of such hearings,
and the transcripts of such proceedings before any bankruptcy court involved
with this matter and the aforementioned relationships, if any, between Veris
Gold, and the Whitebox entities, including Jarrett Canyon Gold LLC, formerly
known as WBVG LLC.[13]

To that end, the Court ORDERS and DIRECTS
Fennemore Craig, P.C., Whitebox Counsel, as the representative for the Whitebox
Entities, including Whitebox Asset Management, Whitebox Advisors LLC, WBox
2014-1 Ltd, to provide the service address for those entities to the Court and
Complainant within 10 days of the date of this Order to enable Complainant to
pursue discovery of Jarrett Canyon Gold, the Whitebox Entities, and such
individuals related to those entities.

/s/ William B.
Moran

William
B. Moran

Administrative
Law Judge

Distribution:

Mark Kaster, Dorsey & Whitney, LLP, 1500 South 6th
Street, Minneapolis, MN 55402

Annette Jarvis, Dorsey & Whitney, LLP, 136 South Main
Street, Suite 1000, Salt Lake City, UT 84101

Daniel B. Lowe, P.O. Box 2608, Elko, NV 89801

Cathy L. Reece, Fennemore Craig, P.C., 2394 East Camelback
Rd., Suite 600, Phoenix, AZ 85016

Brad J. Mantel, Esq., Department of Labor, SOL – Regional
Solicitor’s Office, 201 12th Street South – Suite 401, Arlington, VA 22202-5450

[1] Lowe’s Motion to Amend asserts
that Jerritt Canyon Gold, LLC, Whitebox Asset Management, Whitebox Advisors
LLC, Wbox 2014-1 Ltd., Sprott Mining Inc., and Eric Sprott are the purchasers
of Veris Gold Inc. and the successors in interest to Veris and that the three
principals of Jerritt Canyon Gold LLC are Gregory Gibson, Jacob Mercer, and
Erik Sprott, as its managers. Mot. to Amend 3.

[2] This Order parallels the March
21, 2016, Order issued by this Court in Matthew Varady’s discrimination
complaint against Veris, WEST 2014-307-DM. Lowe and Varady, both non-attorneys,
with each presently proceeding pro se, have assisted one another in
their respective filings. In this instance their motions to amend, seeking to
add Jarrett Canyon Gold as a party were nearly identical submissions. Accordingly,
except for minor adjustments, this Order tracks the substance of Varady Order.

[3] Complainant Lowe’s motion
also requests expedited consideration. As this case is one of many dockets
before the Court and as the Court has already issued many rulings regarding Lowe’s
Complaint, the request to expedite is DENIED.

[4] The motion concludes with
Complainant’s citation to case law, which he maintains support his claim that
these entities should be deemed successors. Such legal conclusions cannot come
about until the facts supporting such a claim have been adduced.

[5] The bankruptcy
proceedings concerned not only Veris Gold USA, Inc., but also Veris Gold Corp.,
Queenstake Resources, Ltd., and Ketza River Holdings, Ltd. (collectively,
“Veris Gold entities”). See Whitebox Resp. Ex. A, at 1.

[6] The Response also asserts
that Deutsche Bank, with $80 million in secured claims, and Small Mine
Development, with an asserted $40 million of secured claims, and various
unidentified “environmental creditors,” asserting $20 million in penalties, all
received no funds for the payment of their claims from the sale of the assets. Whitebox
Resp. 3. This seems unimaginable, if the Response is suggesting that two
significant creditors, with $120 million in secured claims, walked away from
the bankruptcy proceeding with nothing. Whitebox Counsel is directed by the
Court to address this issue.

[7] It does appear to be
admitted that the Complainant filed a Motion to stay the Sale on June 15, 2015,
that the motion was denied and that Complainant did not appeal the Sale order. Whitebox
Resp. 3-4.

[8] In the Court’s
estimation, some aspects of the bankruptcy proceeding involving at least the
monitor, Veris Gold, and Jerritt Canyon Gold are disconcerting. The Court’s
concerns, which are not yet conclusions or findings, stem in part from yet
another discrimination action against Veris in which there was a settlement
agreement between Veris and discrimination complainant Jennifer Morreale. A
Commission Order involving that case informs there was a settlement agreement
in February 2015 with Morreale within which agreement “Veris Gold represented
that it had received approval from a bankruptcy monitor to make the
[settlement] payment, as the operator had previously filed U.S. Chapter 15
bankruptcy proceedings concurrent with Canadian bankruptcy filings and was
subject to the financial oversight of a bankruptcy monitor.” Sec’y of Labor
on behalf of Morreale v. Veris Gold USA, Inc., 38 FMSHRC ___, slip op. at
2, No. WEST 2014-793-DM (Mar. 8, 2016) (emphasis added). However, Morreale was
never paid, the settlement agreement never lived up to, and in June 2015, the
presiding judge in that case learned “that the bankruptcy monitor overseeing the
bankruptcy proceedings had withheld payment to both the Secretary [of Labor]
and Ms. Morreale pending the resolution of an asset sale of the mine by the
operator to a separate entity, Jerritt Canyon Gold, LLC.” Id. Given the
above-mentioned dates, it can be stated with some confidence that the
bankruptcy monitor must have been fully aware of Matthew Varady’s
discrimination complaint in Docket No. WEST 2014-307-DM, and been aware of, and
likely approved, Veris’ employing legal counsel to defend that complaint during
the June 8 through 10, 2015, hearing held before this Court in Elko, Nevada. Similarly
the monitor was likely fully aware of the present complaint brought by Lowe
against Veris, which was heard by this Court on June 18, 2015, and that the
monitor approved the legal defense fees associated with that matter as well,
until it became clear that Veris would not prevail in either matter. Thus, it
seems reasonable to conclude that money was flowing freely for the legal
defense of Veris in both the Varady and Lowe matters, but stopped once it
became clear that Veris would be held accountable for its discrimination
against those miners. The Court doubts that the bankruptcy courts were fully
apprised of these doings.

[9] Displaying lawyering that
frequently causes public revulsion, in stating that “to make sure the Purchaser
[is] protected from further actions,” the Whitebox Entities Response points to
this passage from Paragraph 39 of the Sale Order which provides:

Except to the
extent expressly included in the Assumed Liabilities or to enforce the
Agreement or Permitted Encumbrances, pursuant to Bankruptcy Code Sections 105
and 363, all persons and entities, including but not limited to, the Debtors,
the Monitor, all debt security holders, equity security holders, the Debtors’
employees or former employees, governmental, tax and regulatory authorities,
lenders, parties to or beneficiaries under any benefit plan, trade and other
creditors asserting or holding Liens, Claims, or Interests of any kind or
nature whatsoever against, in or with respect to any of the Debtors or the
Assets (whether legal or equitable, secured or unsecured, matured or unmatured,
contingent or non-contingent, senior or subordinated), arising under or out of,
in connection with, or in any way related to the Debtors’ business prior to the
Closing Date or the transfer of the Assets to the Purchaser, shall be forever
barred, estopped and permanently enjoined from asserting, prosecuting or
otherwise pursuing such Liens, Claims, or Interests whether by payment, setoff,
or otherwise, directly or indirectly, against the Purchaser or any affiliate,
successor or assign thereof, or the Assets.

Whitebox Resp. 5 (quoting Sale Order at 21-22).

[10] The Sur-reply adds that
it is not correct that “one of the Whitebox Entities purchased purchased 20% of
the assets and that Jerritt Canyon Gold LLC purchased 80%.” Whitebox Sur-reply

3. Instead, it is stated that WBox 2014-1 Ltd. owns 20% of the membership
   interest in Jerritt Canyon Gold LLC, which it characterizes as akin to 20%
   of the stock of a corporation. Id.

[11] As with its Response, the
Whitebox Entities’ Counsel seeks attorney’s fees and costs for filing its Sur-reply.
Consistent with the Court’s ruling in the Whitebox Entities’ Counsel seeking
such fees for its Response, this request is similarly DENIED.

[12] Complainant Lowe has
provided business records from MSHA showing Jerritt Canyon Gold LLC as
beginning operations at the Jerritt Canyon Mill on the day following the
cessation of Veris Gold USA, Inc.’s operation at that Mill, with Veris Gold’s
operation at that Mill ending on June 23, 2015, and Jerritt Canyon Gold LLC’s
operation starting on June 24, 2015. Current Mine Information, Mine Safety and
Health Administration, http://arlweb.msha.gov/drs/

drshome.htm#MID (input “2601621” in the MSHA Mine ID
searchbox). The same MSHA records list “WBOX 2014-1 LTD; Eric Sprott” as the
“Current Controller.” Id. Although Lowe also listed other sources as
associated with Whitebox entities, including http://www.corporationwiki.com and
LinkedIn, which list Jacob Mercer as the Senior Portfolio Manager at Whitebox
Advisors LLC, and Greg Gibson and Eric Sprott, as managers for Jerritt Canyon
Gold LLC, and http://www.bloomberg.com, which lists other information about
executives for Whitebox Advisors, LLC, these sources and others of that ilk (e.g.,
Bizapedia, http://www.foxrothschild.com) are insufficient to establish the
information contained in them for purposes of this proceeding.

[13] Failure to respond to
discovery requests may have consequences. The Commission’s rules require that
discovery requests be responded to fully and in writing within 25 days of
service unless the party initiating discovery agreed to a longer time. 29
C.F.R. § 2700.58. While that procedural rule does not itself deem unanswered
requests as admitted, an order to compel discovery may follow and Federal Rule
of Civil Procedure 36(a) provides additional guidance on this issue. See,
e.g., Gray v. North Fork Coal Corp., No. KENT 2010-430-D, 2013 WL
4648492 (FMSHRC Aug. 22, 2013); Sw. Quarry & Materials, 26 FMSHRC
116 (Feb. 2004) (ALJ); Hamilton v. Stone Mountain Trucking Co., 6 FMSHRC
2300 (Sept. 1984) (ALJ).