In re Duke Energy Corporation Coal Ash Derivative Litigation ( 2015 )

EFiled: Aug 31 2015 03:08PM EDT
Transaction ID 57793126
Case No. 9682-VCN
COURT OF CHANCERY
OF THE
STATE OF DELAWARE
JOHN W. NOBLE 417 SOUTH STATE STREET
VICE CHANCELLOR DOVER, DELAWARE 19901
TELEPHONE: (302) 739-4397
FACSIMILE: (302) 739-6179
August 31, 2015
Kathaleen S. McCormick, Esquire Kenneth J. Nachbar, Esquire
Young Conaway Stargatt & Taylor, LLP Susan W. Waesco, Esquire
1000 North King Street Morris, Nichols, Arsht & Tunnell LLP
Wilmington, DE 19801 1201 N. Market Street
Wilmington, DE 19801
Re: In re Duke Energy Corporation Coal Ash Derivative Litigation
Consolidated C.A. No. 9682-VCN
Date Submitted: May 5, 2015
Dear Counsel:
Plaintiffs have sued current and former directors of Duke Energy Corporation
(the “Company”) for alleged fiduciary failings which are said to have caused (or
partly caused) certain coal ash releases in North Carolina, exposing the Company to
civil, criminal, and regulatory liability. The Defendants have moved to stay this
action while the Company defends against parallel litigation involving the same
underlying factual allegations.
In re Duke Energy Corporation Coal Ash Derivative Litigation
Consolidated C.A. No. 9682-VCN
August 31, 2015
Page 2
Although the Company’s criminal liability has been resolved, several
regulatory enforcement actions (brought by the North Carolina Department of
Environment and Natural Resources) and several Clean Water Act1 lawsuits filed by
environmental groups remain (the “related litigation”). Also, a declaratory
judgment action has been brought to clarify how North Carolina groundwater
protection rules apply to coal ash basins. These cases all involve the Company’s
maintenance and oversight (through its subsidiaries) of coal ash ponds in North
Carolina.
Dealing with substantive lawsuits that expose the Company to significant
potential liability at the same time as a derivative action challenging the directors’
conduct will prejudice the Company, and thus its shareholders, in its defense of the
related litigation. Although the need for a stay is reduced by resolution of the
criminal charges, the remaining actions involve a substantial factual overlap with the
claims presented in this derivative action. The related litigation involves allegations
that the Company’s conduct (leading to the coal ash releases) had foreseeable
consequences. The derivative plaintiffs make similar allegations—on behalf of the
1
33 U.S.C. § 1251, et seq. State law claims are also asserted.
In re Duke Energy Corporation Coal Ash Derivative Litigation
Consolidated C.A. No. 9682-VCN
August 31, 2015
Page 3
Company—against the Company’s directors. Tension exists between the
Company’s defense of the related litigation and the Company’s accusing (through
the derivative plaintiffs) its directors of the same general conduct. Moreover, prior
determination of the Company’s liability in the related litigation will facilitate
processing of the derivative action. Finally, the Plaintiffs have not set forth a
persuasive explanation for why a stay of limited duration would prejudice their case.
The Court has the discretion to stay derivative litigation while related actions
involving the same events or conduct which address the liability of the Company are
processed.2
Although a stay of this action pending resolution of the related litigation
makes practical sense, a lengthy stay may not be warranted. First, if the related
litigation becomes bogged down, it would be unfair to the Plaintiffs, and the
Company’s shareholders for that matter, to wait an extended period of time.
Second, at some point, extended delay may generate some prejudice because of the
2
See, e.g., In re Massey Energy Co. Deriv. Litig. and Class Action Litig., C.A.
No. 5430-CS, at 8-12 (Del. Ch. June 15, 2012) (Transcript); Brenner v. Albrecht,
2012 WL 252286, at *4 (Del. Ch. Jan. 27, 2012).
In re Duke Energy Corporation Coal Ash Derivative Litigation
Consolidated C.A. No. 9682-VCN
August 31, 2015
Page 4
inevitable slippage of recollection and challenges in maintaining the useful records
and documents.3
Plaintiffs have asserted a few other arguments against a stay that deserve
comment. First, they suggest that the director defendants are “too interested” to
move for a stay. The purpose of the stay, however, is to benefit the Company: to
reduce the risk and uncertainty that might result from defending itself in the related
litigation while at the same time (even if the claims are asserted by derivative
plaintiffs) suing the directors who may have been responsible for the conduct that
gave rise to the related litigation. No determination yet has been made as to whether
the directors, through their conduct, have lost the presumptions of the business
judgment rule. Until that occurs, at least as a general matter, the current directors
remain responsible for managing the business and affairs of the Company.
Second, Plaintiffs have attempted to formulate a discovery and motion
process that can allow progress in this action while minimizing the problems that it
3
The Company has (as it should have) attempted to preserve the relevant evidence.
Those efforts may minimize the risks; they do not eliminate the risks.
In re Duke Energy Corporation Coal Ash Derivative Litigation
Consolidated C.A. No. 9682-VCN
August 31, 2015
Page 5
might cause with respect to the related litigation.4 A difficulty with this approach is
that the Company, through derivative plaintiffs, will be developing evidence,
including, presumably, deposing directors and seeking to demonstrate culpability for
the very conduct which has precipitated the related litigation.5
A stay of this matter until November 15, 2015, is appropriate to afford the
Defendants, including the Company, which is a Nominal Defendant in this action,
some time to deal with the related litigation. The decision to stay this derivative
action involves a balancing of important and competing factors. Before expiration
of the stay, the Court should revisit the status of the related litigation and determine,
to the extent that it can, when those cases are likely to be brought to a close and how
their progress might impact this action. Although director conduct may be a
component of any remedy the Plaintiffs achieve here, it seems reasonable to
anticipate that monetary liability will be the primary consideration. As noted,
4
Depending upon the circumstances, these concepts may be worth consideration as
the related litigation moves forward.
5
The cases all involve coal ash releases—what was the cause; what was done (or
could have been done) to avoid the releases; what were the consequences; who, if
any, was at fault? Creative pleading in this derivative action will not avoid the
substantial overlap with the related litigation. Cf. In re Molycorp, Inc. S’holder
Deriv. Litig., 2014 WL 1891384 (Del. Ch. May 12, 2014).
In re Duke Energy Corporation Coal Ash Derivative Litigation
Consolidated C.A. No. 9682-VCN
August 31, 2015
Page 6
resolution of the liability question in the related litigation will focus and facilitate
this action. As time goes by, some of those factors supporting a stay likely will
become less persuasive.
Accordingly, this action is stayed until November 15, 2015. For cause, any
party may move to vacate the stay.
In order to revisit the appropriateness of a stay, counsel are requested to
submit status reports on the related litigation during the last week of October 2015.
IT IS SO ORDERED.
Very truly yours,
/s/ John W. Noble
JWN/cap
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