Back

FirstEnergy Corp.

Case Details

Date Filed: September 09, 2020
Case Number: 2:20-cv-04813
Jurisdiction: Ohio Southern District Court
icon-casetype Case Type: Derivative Shareholder Case

Case Summary

On September 9, 2020, the Employees Retirement System of the City of St. Louis filed a shareholder derivative action on behalf of FirstEnergy against the Company’s current and former officers and directors arising from Defendants’ breaches of fiduciary duties and violations of state and federal law from September 9, 2016 through the present.

FirstEnergy is an Ohio-based utility company that generates and transmits electricity to approximately 6 million customers in seven states.  In late 2016, FirstEnergy was under significant financial strain because two of its aging nuclear power plants had become financially unsustainable.  The Company informed its investors that it was seeking “legislative solutions” for these problematic plants.

Defendants then orchestrated a massive, years-long bribery, racketeering and pay-to-play scheme in which FirstEnergy illegally funneled over $60 million to the Ohio Speaker of the House, Larry Householder, and other public officials in exchange for favorable legislation, culminating in a historic criminal complaint filed by the U.S. Attorney for the Southern District of Ohio.  The FBI Special Agent in charge of the investigation described their collaboration as a “sophisticated criminal conspiracy to enact legislation” on behalf of the Company.   Numerous red flags dating back to 2015 relating to FirstEnergy’s transparency about its political spending, connections between the Company and “dark money groups,” and the favorable Ohio legislation suggest that FirstEnergy’s directors and officers knew or should have known about the Company’s misconduct.  The recent revelations of the criminal scheme and Defendants’ knowledge or blatant disregard of it have deeply damaged FirstEnergy, and additional damages to the Company will continue in the coming months and years.

On November 16, 2020, the Court entered an Order appointing the Employees Retirement System of the City of St. Louis and Electrical Workers Pension Fund, Local 103, I.B.E.W. as Co-Lead Plaintiffs, and Saxena White P.A. as Co-Lead Counsel.  The Court also granted Co-Lead Plaintiffs’ Motion for Consolidation.

On January 25, 2021, Co-Lead Plaintiffs filed a Consolidated Complaint.  Defendants filed their Motion to Dismiss on February 24, 2021.  Plaintiffs filed their Opposition to Defendants’ motion on March 24, 2021, and Defendants filed their Reply on April 14, 2021.

On May 11, 2021, the Court denied Defendants’ Motion to Dismiss, finding that the Lead Plaintiffs sufficiently alleged that Defendants “caused the Company to issue Proxy Statements that concealed an illegal bribery scheme, its implications for FirstEnergy’s overall business and financial health, and the deficient governance practices at the Company that allowed it to proceed.”  The Court found that “[w]ithout the misleading statements in each of the proxies…the shareholders would not have voted to re-elect Board members,” and would not have voted to support “millions of dollars in executive compensation” that “incentivized … Defendants’ misconduct.”  The Court further noted how the “numerous ‘red flags’” detailed in the Complaint put “Defendants on notice of the bribery scandal.”  Additionally, the Court found that Lead Plaintiffs sufficiently pled demand futility by alleging through clear and convincing evidence that Defendants knew or recklessly disregarded that FirstEnergy “was paying massive amounts of illicit bribes to Householder and other public office officials to ensure passage of legislation’ and took affirmative steps to conceal the scheme” and “allowed the criminal scheme to continue unchecked.”