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Duke Energy Settles Fraud Class Action For $80 Million

George Reul

After a near decade long legal battle, lawyers representing Ohio ratepayers in southwestern Ohio and lawyers representing Duke Energy filed a Stipulation today in federal district court in Columbus, Ohio, seeking preliminary approval of an $80,875,000 settlement.  (Anthony Williams, et al. v. Duke Energy International, Inc., et al., United States District Court, Case No. 1:08-CV-00046)

After seven years of legal battles, the settlement followed four months of intensive negotiations that began shortly before the trial of the class action was to begin on July 27 of this year. The trial was delayed after the parties advised Chief Judge Sargus of significant progress toward a cash settlement, but with many technical issues involving payments to eligible class members still needing resolution. The class is composed of over one million residential and non-residential electric customers from 2005-2008, all with varying electric usage.

Randy Freking, one of the lead counsel for the class, stated: “We are very happy to have assembled a team to represent very committed clients who withstood years of denials from Duke, and we ultimately recovered an amount $8 million more than the payments by Duke that we always believed were illegal rebates. We are especially excited that some of the settlement will go toward energy efficiency programs in the region, and those funds will have a multiplier effect so that the total value of the settlement will be even greater. The work is not done, but this is a great victory for the ratepayers.”

The settlement provides for a fund for direct payments of $40-$400 to residential customers who make a claim, a fund for direct payments of $300 -$6,000 to non-residential customers who make a claim, and a fund for energy efficiency programs to be administered by a five person board over the next several years. Identified class members will receive a Notice and Claim Form within 60 days, and Judge Sargus will conduct a fairness hearing on April 18, 2016 to determine whether the negotiated settlement is reasonable for class members. Judge Sargus will also decide the amount of attorneys’ fees and expenses to be paid from the settlement.

One individual, two small businesses, and a non-profit organization filed the case in 2008 alleging that an illegal and fraudulent rebate scheme was initiated by Duke Energy’s predecessor, CG&E, a public utility serving southwestern Ohio. In 2004, CG&E filed a Rate Stabilization Plan whereby CG&E sought a significant increase in electricity rates it could charge to residential and non-residential customers. Various parties intervened to object, including three major trade associations. 22 customers belonging to these trade associations suddenly, and without explanation, withdrew their objections and began supporting CG&E’s request for a rate increase.

Plaintiffs claimed that this sudden reversal was easily explained: CG&E had secretly arranged for most of the charges comprising the rate increase to be refunded to the 22 customers. The refunds would not come from CG&E directly but from one of its non-utility affiliates. CG&E drafted a series of “option agreements” that were entered into by the 22 favored customers and an unregulated CG&E affiliate, Cinergy Retail Sales. For four years (January 1, 2005 through December 31, 2008), the favored customers received refunds totaling $73,151,788 from Cinergy Retail Sales. The rest of CG&E’s electricity customers—including residents, businesses, non-profit organizations, and municipalities—received no such rebates.

The alleged illegal scheme came to light after a whistleblower alleged in state court that he was fired for protesting the quarterly refunds to the 22 customers. His case also settled shortly before trial.

Plaintiffs contended that the actions of CG&E (and later Duke Energy) harmed electricity customers under a federal racketeering law, and that Duke engaged in common-law fraud and civil conspiracy. Plaintiffs argued that, by secretly providing rebates to only 22 customers, rather than across the board, CG&E and Duke acted contrary to public representations made to its ratepayers and to others that those rebates were mandatory and unavoidable, essentially engaging in a conspiracy to commit fraud and violate Ohio’s anti-rebate statutes. Duke denied all allegations.

“Duke’s secret payments to 22 of its largest energy customers ten years ago left hundreds of thousands of ratepayers who played by the rules out in the cold,” said Bill Markovits, another lead counsel for the class. “After 8 years of tough litigation, this settlement will provide some compensation to those hundreds of thousands of ratepayers in the form of cash payments,” said Paul DeMarco, also lead counsel.

The case was litigated in the court of appeals and in the U.S. Supreme Court, as Duke attempted to have the highest court accept the case for purposes of dismissing it. After that attempt was unsuccessful, Judge Sargus certified the case as a “class action” and held a hearing on Duke’s request for “summary judgment” to prevent the case from going to trial. The parties resumed earlier unsuccessful efforts to settle the case shortly after the summary judgment hearing.

The four Class Representatives and the Class were represented by two law firms: Markovits, Stock, and DeMarco (Bill Markovits, Paul DeMarco, and Louise Roselle primarily); and Freking and Betz (Randy Freking, George Reul, and Kelly Myers, primarily). For more information, contact Bill Markovits or Randy Freking.



George Reul

The Equal Employment Opportunity Commission (“EEOC”) recently issued new and updated enforcement guidance on pregnancy discrimination for the first time since 1983.   Congress enacted the Pregnancy Discrimination Act (“PDA”) in 1978 as amendment to Title VII of the Civil Rights Act of 1964.  The PDA clarified that discrimination based on pregnancy, childbirth, or related medical conditions is a form of sex discrimination prohibited by Title VII.  According to the EEOC, there has been a substantial increase in charges alleging pregnancy discrimination since the PDA was enacted, disproportionate to the rate of women in the workplace.  The EEOC has included pregnancy discrimination as a national enforcement priority through 2016 and has filed more than 260 pregnancy discrimination cases between 2002 and 2012.
The new guidance was issued to update prior guidance in light of legal developments over the past 30 years.  A potentially significant development with application to the PDA, according to the EEOC guidance, are the 2008 amendments to the Americans with Disabilities Act.  The amendments made it much easier for employees to show that an impairment is a disability even for temporary conditions.  Pregnancy is not a disability, but pregnancy related conditions, such as gestational diabetes, may be covered disabilities, even if temporary according to the guidance.
Interestingly, just days before issuing the guidance, the United States Supreme Court declared it will review a pregnancy and disability case out of United States Court of Appeals for the Fourth Circuit. In Young v United Parcel Service, Inc., Young argued and the Fourth Circuit Court rejected that UPS’ enforcement of a policy of denying light duty to all employees except for those with an on-the-job injury or a disability under the ADA, violated the PDA.  This conclusion appears to be at odds with EEOC’s guidance which states an employer “may not deny light duty to a pregnant worker based on a policy that limits light duty to employees with on-the-job injuries.”  Some observers even thought that the Supreme Court’s decision to review the Young case might cause the EEOC to delay issuing its guidance.


Federal Judge in Houston Accused of Racist Remarks

George Reul

U.S. District Court Judge Lynn Hughes of Southern District of Texas has come under fire recently from legal blogs and litigants in his courtroom. On January 31, 2013, Plaintiff “JT” Shah filed a motion to have Judge Hughes recused from his discrimination case. Shah’s motion asserts that during a pre-trial conference Hughes made several comments that demonstrated actual bias or prejudice against Shaw including: “And what does a diversity director do? Go around and painting students different colors so that they would think they were mixed?”
Judge Hughes also came under fire for comments made in another discrimination case where he awarded the employer attorneys’ fees after he dismissed the case; a rare instance that would only be granted in frivolous cases. In this particular case the Plaintiff Albert Autry had a college degree and eleven years experience as an area supervisor in a school district facilities setting. The plaintiff had argued his race was a factor in the school district’s decision to hire a Caucasian facilities manager with a high school diploma, no prior experience with the school district, and eleven years working for a title insurance company. Mr. Autry alleged that the facilities director who supervised him had made comments during the hiring process that “[i]f President Obama’s elected, they’re going to have to take the Statute of Liberty and put a piece of fried chicken in his [sic] hand.” When Autry’s lawyer suggested that the supervisor’s reference to fried chicken was “a long-standing racial slur,” Judge Hughes responded “[t]hat’s really surprising to Colonel Sanders.”
It is surprising that the court held that this particular case did not have enough evidence to allow a jury to decide the evidence of discrimination. Although the Appeals Court reversed the decision to award attorneys fees to the Defendant, they upheld Judge Hughes’ decision to dismiss his case.
Click here to read The Houston Chronicle report on Judge Hughes
Click here to read the Court of Appeals decision