As I have previously noted (here), even though the parties to the consolidated First Energy derivative litigation pending in the Southern District of Ohio reached an agreement to settle the case for a payment of $180 million and the company’s agreement to adopt governance reforms, Northern District of Ohio Judge John Adams has tried to force the plaintiffs’ lawyers to continue to pursue the separate case pending in his court, notwithstanding the settlement. Now, as Alison Frankel reported in a July 15, 2022 post in her On the Case blog (here), Judge Adams has followed through on his threat to boot the plaintiffs’ lawyers and replace them with lawyers that will pursue the case in his court. At first no prospective replacement lawyers appeared. But now, of all things, the famed litigator David Boies has stepped forward to propose his firm as counsel to take over the case in the Northern District of Ohio. All of this comes just as the settlement proceedings in the Southern District of Ohio are about to come to a head.
First, some background. FirstEnergy is an electric utility based in Ohio. The company formerly operated two nuclear power generation facilities that are expensive to maintain. The company successfully obtained legislation from the Ohio legislature intended to bailout the company for the facilities maintenance expenses. However, according to pending criminal proceedings, the company was able to secure the legislation’s passage through the payment of massive bribes. The bribes, which totaled as much as $60 million, allegedly were paid to the political campaign of Larry Householder, the Speaker of the Ohio House of Representatives, and to support other House candidates. The U.S. Attorney for the Southern District of Ohio reportedly said that “this is likely the largest bribery, money laundering scheme ever perpetrated against the people of the state of Ohio.”
After the revelation of the bribery, a number of different claimants launched a variety of civil lawsuits, including a number of shareholder derivative lawsuits. Most of the shareholder derivative lawsuits were consolidated in the Southern District of Ohio, before Judge Algenon Marbley. However, one of the derivative lawsuits was filed in the Northern District of Ohio, before Judge Adams. For a number of reasons, including the fact that the Northern District of Ohio case was the first to be filed, Judge Adams refused to consolidate the case in his court with the other cases in the Southern District.
After the parties to the consolidated cases reached a proposed settlement in February 2022 (as discussed here), the parties filed a joint motion in the Northern District of Ohio to stay the proceedings there while they sought approval of their settlement in the Southern District of Ohio. Judge Adams refused to stay his case and threatened to replace the plaintiffs’ lawyers if they did not proceed to prosecute their action – notwithstanding the fact that the parties had already reached a settlement that would resolve their case.
It is probably worth noting that the parties’ settlement is one of the largest derivative lawsuit settlements ever, a fact that apparently makes little impression on Judge Adams. In May Judge Marbley entered an order granting preliminary approval of the settlement. The plaintiffs’ lawyers have now filed a motion with Judge Marbley for final approval of the settlement, including a request for the payment of plaintiffs’ attorneys’ fees of $48.6 million. A fairness hearing to consider the plaintiffs’ request for final approval is scheduled for this Thursday, August 4.
In other words, the settlement process has played out in an orderly way in Judge Marbley’s courtroom. But Judge Adams is having none of this.
On July 13, 2022, in what Frankel in her blog post called “the latest bizarre development in one of the weirdest shareholder derivative cases I’ve ever run across,” Judge Adams entered an order (here) stating “As the parties have made clear that they do not intend to prosecute the matter before this Court, the Court will appoint counsel.” The order stated that the new counsel should “be willing to diligently prosecute this matter and seek approval from this Court of any potential resolution, if one is reached, as required by rule.” Prospective counsel were directed to apply to the court by July 25, 2022.
At first no prospective counsel stepped forward – as Frankel noted, for the seemingly obvious reason that everyone on the planet except Judge Adams understands that this case has been settled.
But just when you thought things could not get any weirder, it turns out that — of all things– David Boies has stepped forward as a candidate to take over the case in the Northern District of Ohio. Boies sent the court a July 23, 2022 letter proposing his firm as plaintiffs’ counsel in the case. Among other things, Boies proposes that his law firm would represent a FirstEnergy shareholder named John Donovan in the case. Boies’s letter is attached to a July 26, 2022 order (here) entered by Judge Adams in the case. The order states that a total of five law firms applied for the position. The order also stated that the court would issue a later order specifying what procedures the court would follow to appoint replacement counsel.
So that is the state of play in the Northern District of Ohio as the parties now travel to the Southern District of Ohio for the proceedings later this week on the plaintiffs’ motion for final approval of the settlement.
Just to mix things up further, objectors to the settlement have appeared in the Southern District proceedings. On July 21, 2022, a special litigation committee of independent FirstEnergy directors filed an objection to the plaintiffs’ lawyers’ request for fees of $48.6 million.
As if that were not enough, John Donovan, the FirstEnergy shareholder that David Boies wants to represent in the Northern District of Ohio, also has appeared in the Southern District of Ohio proceedings to object to the settlement. Among other things, Donovan attacked the settlement by saying “[B]efore taking a single deposition, plaintiffs have proposed a settlement that handsomely rewards plaintiffs’ counsel, while failing to provide any reasonable recovery to FirstEnergy and its shareholders.” Donovan’s settlement objection also specifically argues that any settlement of the case in the Southern District of Ohio should not apply to the proceedings in the Northern District of Ohio.
So the proceedings in Judge Marbley’s courtroom this week should be interesting, to say the least. It is interesting to speculate about what happens next if Judge Marbley gives his final approval to the settlement (perhaps with an allowance for attorneys’ fees less than the plaintiffs’ lawyers have requested).
Say, for example, what will happen if Judge Adams appoints Boies’s law firm as plaintiffs’ counsel in the proceedings in the Northern District of Ohio? One obvious problem for Boies at that point is that the settlement agreement contains a full release of the defendants. An entry of judgment on the settlement in the Southern District of Ohio would have res judicata effect on the claims that the plaintiff in the Northern District of Ohio would be trying to pursue.
But given how weird everything has been in this case, who knows what will happen next? The real shame here is that all of these extra proceedings are imposing additional fees and costs on all of the parties. In particular, as defense counsel are compelled to continue to litigate a case that has in fact already been settled, their fees continue to erode the amount of remaining insurance available, reducing the funds out of which any recovery for the benefit of FirstEnergy could be effected. In other words, in a proceeding that is supposedly being maintained for the benefit of FirstEnergy, Judge Adams’s continued agitation of the case is in fact directly contrary to the interests of FirstEnergy. This whole mess is a sad and sorry spectacle to behold.