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FirstEnergy Bribery Suit Judge Slams Effort to Settle Elsewhere

July 6, 2022, 6:56 PM

A FirstEnergy Corp. stockholder’s suit claiming that former executives were involved in a bribery scheme that eventually cost the company a huge fine and hurt its stock value will remain active in one federal court in Ohio after a judge there criticized a settlement pending on nearly identical claims in another federal court in the state.

Judge John R. Adams denied investor Jennifer L. Miller’s joint request with FirstEnergy and the individual defendants to dismiss the derivative suit in the US District Court for the Northern District of Ohio, which was filed before the parallel suit in the Southern District of Ohio.

The parties are engaging in forum-shopping, Adams said in a ruling rejecting that request on Tuesday. The judge’s own skepticism about the proposed settlement “reveals why the parties may desire to have their settlement reviewed by another District,” he said.

The suit alleges FirstEnergy conspired with public officials in a scheme to obtain “a billion-dollar bailout” in the form of legislation increasing ratepayer surcharges.

FirstEnergy entered into a deferred prosecution agreement with federal prosecutors, according to a court order issued by Adams in March. Its admissions included that it paid more than $80 million to companies controlled by a utilities commissioner and to a political group, the judge said then.

The parties’ request for dismissal of the derivative suit before him came after Judge Algenon L. Marbley in the Southern District case granted preliminary approval of the proposed $180 million settlement May 9, but said he lacked authority to halt the Northern District action.

Southern District Deal

Adams, at a hearing, cited several problems with the proposed accord in the case before Marbley, including the incomplete state of document exchanges, the lack of testimony under oath, and communications that may be missing from one defendant’s electronic devices.

Given that the settlement would allocate up to $48 million of that money for attorneys’ fees, “it is hardly surprising that the parties would seek out what they believe to be a more favorable forum,” Adams said in the Tuesday ruling.

The size of the proposed settlement “pales in comparison to the losses caused by the bribery scheme at issue,” he said. The company had to pay a $230 million fine, lost an estimated $1 billion in shareholder value, and faces individual and class litigation, he said.

Further, “the alleged wrongdoers will pay not a single cent to the settlement,” and FirstEnergy passed on an opportunity to recoup compensation from the alleged participants in the bribery scheme, he said.

There’s no reason to depart from the “first-to-file” rule, in which a case should proceed to judgment in the court where the parties first brought claims and issues also pending in another court, Adams said.

A third derivative suit is pending in an Ohio state court, according to Adams.

Goldman, Scarlato & Penny PC; Rosca Scarlato LLC; Edelson Lechtzin LLP; and John C. Camillus, who practices in Columbus, Ohio, represent the Northern District shareholders. ArentFox Schiff LLP, Perez Morris, and Debevoise & Plimpton LLP represent FirstEnergy. Jones Day represents the officers and directors.

The case is Miller v. Anderson, N.D. Ohio, No. 5:20-cv-01743, 7/5/22.

To contact the reporter on this story: Martina Barash in Washington at mbarash@bloomberglaw.com

To contact the editors responsible for this story: Rob Tricchinelli at rtricchinelli@bloomberglaw.com; Andrew Harris at aharris@bloomberglaw.com