FirstEnergy’s headquarters in Akron. Source: Google Maps.
BY: JAKE ZUCKERMAN – Ohio Capital Journal
A federal judge in Akron has refused to dismiss a lawsuit between FirstEnergy Corp. — which has admitted that it bribed two top Ohio politicians with $64 million — and some of its shareholders.
U.S. District Judge John R. Adams denied a motion Tuesday, filed jointly by the company and its investors, asking him to dismiss the case in light of a proposed settlement preliminarily agreed to by another federal judge.
Adams accused the parties of “forum shopping,” or looking for a friendly judge given his previous skepticism of the settlement. He also implicitly accused FirstEnergy of protecting its former CEO’s riches, and the plaintiff’s lawyers of cashing in without properly investigating the company’s scheme.
The lawsuit traces back to the 2019 passage of state House Bill 6, which included several provisions favorable to FirstEnergy worth an estimated $1.3 billion to the company. This included a massive, ratepayer funded bailout for nuclear plants it owned at the time.
FirstEnergy admitted in a deferred prosecution agreement last summer that it engaged in the bribery operations, with money flowing from the company to entities controlled by Ohio House Speaker Larry Householder and Public Utilities Commission of Ohio Chairman Sam Randazzo. Householder awaits trial and has pleaded innocent. Randazzo has not been charged and maintained his innocence.
The agreement required the company to admit to a lengthy proffer of facts, cooperate with ongoing criminal probes, and pay a $230 million penalty to avoid a criminal charge of wire fraud.
Shareholders have brought three derivative suits against the company over their losses incurred by the scandal — one in state court and two in federal court. In March, FirstEnergy announced it reached a settlement with the shareholders. It called for the company to oust six board members and receive $180 million from company insurers.
U.S. District Judge Algenon L. Marbley preliminarily approved the settlement in May but said he had no authority over other judges’ cases.
In Adams’ order Tuesday, he expressed incredulity at the lack of investigative efforts from the plaintiffs and the lack of consequences for some of the defendants.
The shareholders’ lawyers have claimed, defending the proposal, that this would be the largest settlement of its type in Ohio.
Big whoop, Adams said.
FirstEnergy already paid a $230 million penalty, he said. The case record indicates shareholders lost more than $1 billion in value when the news of the initial criminal arrests in the scandal broke and the company’s share price plummeted. The insurance payout is a fraction of these losses. He noted that the small army of plaintiffs’ lawyers on the case could take a sizable chunk of the proposed settlement.
“Given that counsel is permitted under the settlement to seek up to $48,600,000 in attorney fees, it is hardly surprising that the parties would seek out what they believe to be a more favorable forum,” he said.
He also noted a finding in a recent regulatory audit that found FirstEnergy could have reclaimed some of the $55 million it paid to then-CEO Chuck Jones during the roughly three-year span of the criminal allegations. Though the company fired Jones, it never invoked the contractual provision allowing it to reclaw the compensation, the audit found.
In his order, Adams also cited uncomplete exchange of evidence between parities, no testimony under oath from any defendants, and an incomplete forensic examination to identify “possible missing communications” from Jones’ phone.
While FirstEnergy as a company faces criminal consequences, its executives to date have not. The deferred prosecution agreement the company entered, meanwhile, doesn’t specifically identify who organized the bribery operation.
Earlier this year, Adams refused to allow any settlement — and at one point stormed off during a hearing — until someone in the case admitted who specifically orchestrated the bribery operation. Counsel representing plaintiffs identified both Jones and fellow executive Mike Dowling as the central operators. The two men are named defendants in the shareholder lawsuit.
John Camillus, an attorney and “liaison counsel” for some of the plaintiffs, declined to comment.
A FirstEnergy spokeswoman declined to comment.
