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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.

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