FirstEnergy Ruling Limits Path to Securities Class Certification

A landmark ruling in the FirstEnergy scandal securities litigation chipped away at an expansive test companies feared would broaden securities class actions exposure.

The Sixth Circuit on Wednesday rejected a certification by a trial court that focused on alleged company omissions of breaking the law in a bribery scheme—a wide-ranging scandal that took down former state House Speaker Larry Householder. The appeals court vacated a decision to certify a class of investors suing the Ohio-based utility and its officers over a valuation dip after the $60 million bribery conspiracy came to light.

The decision tossing the class could help narrow certification in cases where mixed omissions and misrepresentations from company officials are alleged.

“What the plaintiffs were trying to do was basically turn class certification to make it automatic, and now they have to go and do their work,” said Robert J. Giuffra Jr., co-chair of Sullivan & Cromwell and attorney for FirstEnergy.

The investors see it as a speed bump that won’t block their case.

“We argued the appeal over a year ago,” said Jason A. Forge, a partner at Robbins Geller Rudman & Dowd and attorney for the plaintiffs. “We’re relieved to now have a clear path to get this case to trial.”

Dueling Standards

The decision dug into dueling tests for getting class certification in costly securities cases.

The first—used in cases based on material omissions from a company and its officials—is called the Affiliated Ute standard, developed by the US Supreme Court in 1972’s Affiliated Ute Citizens of Utah v. United States.

In cases that primarily center on a business’s failure to disclose information, a class of investors can get a presumption from the court for a key class certification prong if they can show an omission of a material fact by someone with a duty to disclose that information.

That standard is far easier to meet than the Basic standard laid out in the high court’s 1988 ruling in Basic Inc. v. Levinson. That test, which applies to false public statements, requires plaintiffs to show false statements issued by the company were material and that the security traded in an “efficient market” where trading is based on all public information.

Proving an “efficient market” for a security can be difficult, especially in cases like this based on notes and not stocks traded in a major stock exchange, University of Colorado Law Professor Ann M. Lipton said.

That test is only getting tougher to meet for plaintiffs, with courts raising the bar for plaintiffs seeking to meet the Basic standard.

“Defendants have been very successful in getting the Basic presumption narrowed,” Lipton said. “Affiliated Ute may seem like a pathway when Basic can’t be invoked in all cases, and defendants are concerned plaintiffs would be able to find refuge.”

Half-Truths

A group of law professors and former SEC officials filed an amicus brief urging the Sixth Circuit to reverse the trial court, warning that the decision “if allowed to stand, would be far-reaching.”

“The district court’s decision invites artful pleading by plaintiffs in securities class actions to avoid the strictures of Basic. This can be easily accomplished because virtually all misrepresentations can be recast as omissions or half-truths,” they said in a brief filed by their lawyer Todd G. Cosenza, a partner with Willkie Farr & Gallagher.

The court agreed, aligning itself with several other circuits which have found that “half-truths” and non-specific corporate statements fall under misrepresentations.

The Sixth Circuit found 2016 and 2017 FirstEnergy financial disclosures discussed it was pursuing “regulatory solutions” for a struggling power plant. The company didn’t state that it was seeking this solution through bribery, and it also misrepresented the truth in a statement saying it complied with state and federal law while breaking the law—and those were misrepresentations, not omissions, the appeals court said.

Denying certification would likely doom the case. On remand the trial court will have to consider whether company statements made while it was seeking a state-funded nuclear plant bailout were enough to bring a class action.

Giuffra called the ruling a “big deal” for companies facing investor suits over alleged “half-truths.” He said it empowers FirstEnergy’s defense when the trial court will have to consider whether company statements made while it was seeking a state-funded nuclear plant bailout were enough to bring a class action.

“On remand we will argue that a lot of these disclosures by FirstEnergy were generic, aspirational statements that every company makes, they’re not the kind of statements that move markets and therefore could not have impacted the stock price,” he said. “That’s not a statement that can be subject to the Basic presumption.”

The case is Owens v. FirstEnergy Corp, 6th Cir., No. 23-3940, class certification vacated 8/13/25.