Opinion
5:20-cv-01743-JRA
08-22-2022
JENNIFER MILLER, Plaintiff, v. MICHAEL J. ANDERSON, et al., Defendants.
Marc E. Dann (0039425) Brian D. Flick (0081605) DannLaw 15000 Madison Avenue William B. Federman* FEDERMAN & SHERWOOD -and- Thomas A. Zimmerman, Jr. Zimmerman Law Offices, P.C. Proposed Plaintiffs' Interim Co-Lead Counsel *pro hac vice applications forthcoming
Marc E. Dann (0039425)
Brian D. Flick (0081605)
DannLaw
15000 Madison Avenue
William B. Federman*
FEDERMAN & SHERWOOD
-and
Thomas A. Zimmerman, Jr.
Zimmerman Law Offices, P.C.
Proposed Plaintiffs' Interim Co-Lead Counsel *pro hac vice applications forthcoming
STATEMENT REGARDING DISCOVERY BY WILLIAM B. FEDERMAN, MARC E. DANN, AND THOMAS A. ZIMMERMAN, JR.
COME NOW William B. Federman (“Mr. Federman”) of Federman & Sherwood, Marc E. Dann (“Mr. Dann”) of DannLaw, and Thomas A. Zimmerman, Jr. (“Mr. Zimmerman”) of Zimmerman Law Offices, P.C. (collectively, “Proposed Plaintiffs' Interim Co-Lead Counsel”), and, pursuant to the Court's Order dated July 29, 2022 (ECF No. 335) submit this statement regarding discovery.
In the July 29, 2022 Order, the Court ordered Proposed Plaintiffs' Interim Co-Lead Counsel to provide a filing that includes “a description of what they believe will be the subjects on which discovery is to be sought, the nature and extent of discovery, any potential problems that may arise with discovery, the possible use of experts to aid in discovery or litigation, and the dates by which they believe discovery could be completed.” Id. In support of their application for appointment as Plaintiffs' interim co-lead counsel, Proposed Plaintiffs' Interim Co-Lead Counsel state as follows:
I. INTRODUCTION
The operative Amended Verified Stockholder Derivative Complaint (“Complaint”) asserts two counts against the company's officers and directors. The Deferred Prosecution Agreement entered into by the company includes a stipulated statement of facts that sets forth the criminal conspiracy and the bad actors involved in it. See United States of America v. FirstEnergy Corp., Court No. 1:21-cr-86 (S.D. OH), ECF No. 3, at pp. 14-44.
Proposed Plaintiffs' Interim Co-Lead Counsel would seek to conduct expedited discovery (as detailed below) to identify and plead additional claims (in a second amended complaint) against the current Defendants, as well as additional persons and entities who participated in the fraudulent scheme. Thereafter, Proposed Plaintiffs' Interim Co-Lead Counsel would file a second amended complaint to include additional claims and other culpable persons and entities as defendants, in order to increase the potential recovery for the shareholders.
II. THE SUBJECTS ON WHICH DISCOVERY IS SOUGHT
Expedited discovery would focus on identifying the actors in the criminal conspiracy, and obtaining sufficient factual information to support allegations against them in a second amended complaint. Some of the potential conspirators include:
A. Clearsulting, LLC - the management consulting firm that was delegated internal auditing responsibility for the entities involved in the fraud. Whistleblower Michael Pircio worked for Clearsulting LLC. “Pircio downloaded files from FirstEnergy through a Clearsulting shared workspace and provided them to a lawyer, who turned them over to the Securities and Exchange Commission, which apparently opened an investigation.” FirstEnergy Corp. v. Pircio, 524 F.Supp.3d 732, 735 (N.D. Ohio 2021).
Mr. Dann and the attorneys at DannLaw represented the whistleblower, Michael Pircio, who was sued by FirstEnergy Corp. and Clearsulting LLC for retaliation after Mr. Pircio submitted FirstEnergy financial records to the Securities and Exchange Commission (“SEC”) so the SEC could investigate FirstEnergy's wrongdoing. Mr. Dann successfully obtained a dismissal of the lawsuit against Mr. Pircio.
B. PricewaterhouseCoopers LLP - provides business advisory services to FirstEnergy, including audit, accounting, and strategy management services. PricewaterhouseCoopers LLP was appointed as FirstEnergy's independent registered public accounting firm.
C. Jeffrey Longstreth - lobbyist who admitted to organizing Generation Now for Larry Householder, knowing that the entity would be used to receive bribe money to further Mr. Householder's bid for Speaker of the Ohio House of Representatives. Mr. Longstreth managed Generation Now bank accounts and engaged in financial transactions designed to conceal that FirstEnergy was a source of funding to Generation Now.
D. Neil Clark - lobbyist (deceased, so his estate would be named as a defendant) who participated in a conspiracy to elect Larry Householder as Speaker of the House, and deliver and defend a $1 billion nuclear bailout for the company (i.e., House Bill 6).
E. Matthew Borges - lobbyist for FirstEnergy, and former chairman of the Ohio Republican Party. He worked to thwart a referendum attempt after lawmakers passed the bailout for FirstEnergy.
F. Juan Cespedes - lobbyist for FirstEnergy referred to as a “key middleman.” Mr. Cespedes received at least $600,000 from FirstEnergy through dark money groups and 17 Consulting Group. He was accused of planning the timeline for Larry Householder to help FirstEnergy prior to Mr. Householder becoming Speaker of the House. While House Bill 6 was working its way through the Ohio Legislature, Mr. Cespedes and Jeff Longstreth coordinated contributions to Generation Now.
G. Larry Householder - former Speaker of the Ohio House of Representatives who took a bribe in the realm of $60 million from FirstEnergy to secure a $1 billion nuclear bailout for FirstEnergy (i.e., House Bill 6).
H. Generation Now - a 501(c)(4) organization purportedly controlled by Larry Householder that received millions of dollars in bribes from FirstEnergy and its affiliates.
I. Sam Randazzo - former Chairman of the Public Utilities Commission of Ohio who worked behind the scenes to hinder attempts to fully repeal House Bill 6. FirstEnergy admitted to bribing him.
J. 17 Consulting Group - an entity incorporated by Matthew Borges. Generation Now wired over $1 million to 17 Consulting Group.
K. Consultants who enriched themselves through the laundered corporate money expenditure in Generation Now.
L. Other accounting vendors and consultants who can be identified through discovery.
At a minimum, these persons and entities should immediately be placed on notice of their obligation to preserve documents through, for example, document preservation subpoenas.
Proposed Plaintiffs' Interim Co-Lead Counsel would also seek discovery on the roles of the officers and directors of the company in the criminal conspiracy, their corporate oversight (or lack thereof), and the severance packages received by the Defendants who are implicated in the conspiracy in an effort to recoup that money, stock, etc.
III. THE NATURE AND EXTENT OF DISCOVERY
Proposed Plaintiffs' Interim Co-Lead Counsel would start by reviewing and supplementing existing written discovery and document requests. And third-party subpoenas would be issued to obtain documents that are likely to exist, such as:
A. Clearsulting, LLC - discovery regarding its internal auditing of First Energy and any other entities involved in the fraud.
B. PricewaterhouseCoopers LLP - discovery regarding the business advisory services that it provided to FirstEnergy, including audit, accounting, and strategy management services.
C. Jeffrey Longstreth - discovery regarding Generation Now, the bribe money it received and paid out, and the financial transactions designed to conceal that FirstEnergy was a source of funding to Generation Now.
D. Neil Clark - discovery regarding his efforts to elect Larry Householder as Speaker of the House, deliver and defend a $1 billion nuclear bailout for FirstEnergy (i.e., House Bill 6), and any money he received or paid out for those efforts.
E. Matthew Borges - discovery regarding 17 Consulting Group, his lobbying efforts on behalf of FirstEnergy, including his efforts to thwart a referendum attempt after lawmakers passed the bailout for FirstEnergy, and any money he received or paid out for those efforts.
F. Juan Cespedes - discovery regarding his lobbying efforts on behalf of FirstEnergy and his efforts to conspire with Larry Householder and Jeff Longstreth, any money he received or paid out for those efforts, and any contributions to and from Generation Now and 17 Consulting Group.
G. Larry Householder - discovery regarding his efforts on behalf of FirstEnergy, and any money he received or paid out for those efforts.
H. Generation Now - discovery regarding the bribe money it received and paid out, and the financial transactions designed to conceal that FirstEnergy was a source of funding to Generation Now.
I. Sam Randazzo - discovery regarding his efforts to hinder attempts to fully repeal House Bill 6, and any money he received or paid out for those efforts.
J. Records of 17 Consulting Group - discovery regarding the bribe money it received and paid out, and the financial transactions designed to conceal that it was paying bribes.
K. Bank Records of the Defendants and Dark Money Groups That Funneled Bribes - discovery regarding the bribe money they received and paid out.
L. Severance Packages of the Defendants who are Implicated in the Criminal
Conspiracy - discovery regarding the severance packages received by the Defendants who are implicated in the conspiracy in an effort to recoup that money, stock, etc.
M. Text Messages of the Defendants and Co-Conspirators - wrongdoers will often communicate using text messages.
N. Private Emails of the Defendants and Co-Conspirators - wrongdoers will often communicate using their private email addresses.
O. Telephone Records of the Defendants and Co-Conspirators - these are useful to establish the times and dates of conversations between wrongdoers.
P. Records from the Public Utilities Commission of Ohio - relating to ex parte communications between Sam Randazzo and FirstEnergy officials.
Q. Financial Solvency of Defendants and Potential Defendants - discovery regarding the availability of insurance and personal and corporate assets to satisfy a judgment in this case.
Additionally, depositions would be taken of each of the current Defendants, any newly-added Defendants, and any relevant third parties.
IV. POTENTIAL PROBLEMS THAT MAY ARISE WITH DISCOVERY
Due to their potential criminal exposure, many of the persons to be deposed would assert their 5th Amendment privilege against self-incrimination, and the claims against them may have to be proved based on the presentation of documents and the testimony of third parties with knowledge of the scheme. Thus, the preservation and production of documents at the very early stages of the litigation is paramount.
Proposed Plaintiffs' Interim Co-Lead Counsel have encountered, and dealt with, “typical” discovery issues in other shareholder derivative suits that they expect will also be present in this case, including:
A. Attorney-Client and Work Product Privilege - the issue is who owns the privilege: the officers and directors, the company, or the company's special litigation committee? We want to obtain the entire Board packets, communications with counsel, etc. If the shareholders in a derivative action are “stepping into the shoes” of the company, then the privilege should not be used as a shield to withhold information from the shareholders. This is particularly true when the shareholders can show that demand is futile on the Board or that the Board (perhaps even the company's special litigation committee) did not take appropriate corrective action and is trying to protect the wrongdoers.
B. Spoliation of Evidence - information and documents may have been deleted based on a short document retention/destruction policy, or intentionally to conceal wrongdoing. Depending on the nature of the deleted data, we may need to obtain deleted information and documents from third parties, obtain testimony describing what was contained in the deleted information and documents, or obtain deleted data using a data recovery service.
C. Obtaining Text Messages is Crucial (Not Just Emails) - knowing that emails will be saved by others, or can be accessed via the company's server or a third party email hosting service, wrongdoers will often communicate using text messages. We need early access to the wrongdoers' cell phones to obtain text messages before they are deleted.
D. Private Email Addresses Used by Wrongdoers - wrongdoers will often communicate using their private email addresses, in order to keep that information off the company's server or the third party email hosting service used by the company. We need to conduct discovery into wrongdoers' private email addresses.
E. Telephone Records - these are useful to establish the times and dates of conversations between wrongdoers, which helps complete the timeline of events in the conspiracy. We need to subpoena the wrongdoers' telephone carriers for these records. Defendants often assert attorney-client privilege over these records, but we should be able to obtain these records because they do not contain legal advice.
V. THE POSSIBLE USE OF EXPERTS TO AID IN DISCOVERY OR LITIGATION
Proposed Plaintiffs' Interim Co-Lead Counsel would seek through discovery and expert document review an accounting of the disposition of the money paid in the bribery scheme.
All proposed experts that Proposed Plaintiffs' Interim Co-Lead Counsel consider to retain in this matter have previously been recognized as experts in their fields and have been involved in numerous Daubert hearings. Based on our prior work in financial and shareholder derivative actions, we intend to immediately involve experts that can provide efficient and timely services to support the claims to be asserted in a second amended complaint, such as:
The Curriculum Vitae and further background information on the experts proposed to be retained are available to be submitted to the Court for an in camera review if the Court would like to review this information.
A. Damages Expert - we have worked with specialized economic experts in complex cases (such as this one) where proving fraud in transactions was the key component of the case.
B. Accounting/Audit Expert - we have worked with accounting/audit experts in other shareholder derivative actions who provide litigation support services, including discovery planning, document review, deposition assistance and guidance. The accounting/audit expert we would retain has been retained by the Department of Justice as the lead accounting expert and testified in a criminal fraud case against senior management of large public companies, and has also been retained by state attorney generals in price misreporting actions.
C. Corporate Governance Expert - we intend to retain a corporate governance expert to provide testimony on the failure of internal controls at the company and the responsibility of the officer and director Defendants that led to their breaches of fiduciary duty and internal controls, as well as oversight functions.
VI. THE DATES BY WHICH DISCOVERY COULD BE COMPLETED
Proposed Plaintiffs' Interim Co-Lead Counsel believe discovery could be completed according to the following schedule:
Expedited Written and Oral Discovery to Identify Third Parties to Add as Defendants: completed by Nov. 11, 2022
File a Second Amended Complaint: by Nov. 18, 2022
Fact Discovery Completed: 180 days after ruling on any motions to dismiss
Expert Discovery Completed: 60 days after completion of fact discovery.
These estimated deadlines are based, in part, on obtaining cooperation from current Plaintiffs' counsel and defense counsel.
VII. CONCLUSION
For the reasons stated herein and in their prior application for appointment, William B. Federman, Marc E. Dann, and Thomas A. Zimmerman, Jr. seek appointment as Plaintiffs' interim co-lead counsel, and for any other relief the Court deems just under the circumstances.