Smith v. FirstEnergy Corp.
| Citation | 518 F.Supp.3d 1118 |
| Decision Date | 10 February 2021 |
| Docket Number | 03987,Case Nos. 2:20-cv-03755,03954 |
| Court | U.S. District Court — Southern District of Ohio |
| Parties | Jacob SMITH, Plaintiff, v. FIRSTENERGY CORP. and FirstEnergy Service Co., Defendants. Brian Hudock and Cameo Countertops, Inc., Plaintiffs, v. FirstEnergy Corp., et al., Defendants. James Buldas, Plaintiff, v. FirstEnergy Corp., et al., Defendants. |
Richard M. Kerger, The Kerger Law Firm, LLC, Toledo, OH, Andrew Szot, Pro Hac Vice, Marvin A. Miller, Pro Hac Vice, Miller Law LLC, Chicago, IL, Kevin P. Roddy, Pro Hac Vice, Wilentz, Goldman & Spitzer, P.A., Woodbridge, NJ, for Plaintiff.
Carole Schwartz Rendon, Baker & Hostetler LLP, Cleveland, OH, Michael R. Gladman, M. Ryan Harmanis, Margaret M. Dengler, Tiffany D. Lipscomb-Jackson, Jones Day, Columbus, OH, Yaakov Roth, Pro Hac Vice, Jones Day, Washington, DC, for Defendant FirstEnergy Corp.
Carole Schwartz Rendon, Baker & Hostetler LLP, Cleveland, OH, Michael R. Gladman, Margaret M. Dengler, Tiffany D. Lipscomb-Jackson, Jones Day, Columbus, OH, Yaakov Roth, Pro Hac Vice, Jones Day, Washington, DC, for Defendants FirstEnergy Service Company, James F. Pearson, Steven E. Strah, K. Jon Taylor.
Carole Schwartz Rendon, Daniel Rubin Warren, Terry M. Brennan, Mary Pat Brogan, Pro Hac Vice, Baker & Hostetler LLP, Cleveland, OH, Christopher W.H. Sullivan, Pro Hac Vice, F. Joseph Warin, Pro Hac Vice, William Scherman, Pro Hac Vice, Gibson, Dunn & Crutcher LLP, Jason J. Mendro, Pro Hac Vice, Washington, DC, for Defendant Charles E. Jones.
Carole Schwartz Rendon, Baker & Hostetler LLP, Cleveland, OH, for Defendant Does 1-10.
Carole Schwartz Rendon, Baker & Hostetler LLP, John A. Favret, III, John F. McCaffrey, Tucker Ellis LLP, Cleveland, OH, for Defendants Michael J. Dowling, Michael Dowling.
OPINION & ORDER DENYING DEFENDANTS’ MOTION TO DISMISS (ECF No. 25)
In the summer of 2020, former Speaker of the Ohio House of Representatives Larry Householder and his political associates were indicted for a $60 million-dollar federal racketing conspiracy. The criminal complaint alleged that in exchange for hefty bribes from "Company A," Householder and members of his racketeering enterprise ("Householder Enterprise") worked to pass and uphold House Bill 6 ("HB 6"), a near billion-dollar nuclear power plant bailout for "Company A" and its affiliates. According to the Complaint, it is widely known that "Company A" is FirstEnergy Corp. In the instant case, Plaintiffs, individual and commercial ratepayers of FirstEnergy Corp., bring civil claims on behalf of a proposed class against Defendants, FirstEnergy Corp., FirstEnergy Service Co., and various individuals in decision-making roles at either entity. Plaintiffs allege that as a result of FirstEnergy's racketeering alongside the Householder Enterprise, they have been injured by having to pay costs and fees set forth in HB 6. Before the Court is Defendants’ motion to dismiss.
As extensively alleged in the federal criminal indictment and complaint, both of which Plaintiffs incorporate in their amended complaint, Defendant FirstEnergy Corp., a public utility, owned two failing nuclear power plants. (ECF No. 19 at ¶ 5, 11–12.) In 2016, FirstEnergy Corp. predicted that it would lose "hundreds of millions of dollars from its nuclear energy affiliate," and that its affiliates involved in nuclear energy would soon seek bankruptcy. (Id. at ¶ 27.) FirstEnergy Corp. and FirstEnergy Service, Co., one of these nuclear affiliates, (collectively "FirstEnergy") began pursuing a "legislative solution" to avoid disastrous financial fallout from the failure of the two nuclear power plants. (Id. at ¶ 28.)
According to the Complaint, Householder appeared to hold the keys to such a solution. Plaintiffs claim that as he was seeking to regain his seat in the Ohio House and his role as Speaker, he and FirstEnergy began to cultivate a relationship. (Id. at ¶ 30.) The Complaint asserts that a charitable entity called Generation Now, formed pursuant to 26 U.S.C. § 501(c)(4), began to receive payments from FirstEnergy. (Id. at ¶¶ 30, 35.) Generation Now was secretly controlled by the Householder Enterprise. (Id. ) Unlike political action committee or campaign contributions, payments to 501(c)(4) entities are not regulated or publicly reported. (Id. at ¶ 35.) Thus, FirstEnergy could put as much money as it wished into Generation Now and the Householder Enterprise could spend any amount of this money in any manner, all without any of the typical oversights or public scrutiny of other political or campaign committees. (See id. at ¶¶ 35, 51.) Plaintiffs allege that in exchange for these payments, the Householder Enterprise, but particularly Householder, would deliver HB 6. (Id. at ¶ 67.)
The Complaint claims that the Householder Enterprise via Generation Now received more than $60 million dollars in bribes from FirstEnergy between 2017 and 2020. (Id. at ¶ 35.) The Plaintiffs contend that the Householder Enterprise spent this money on ten Ohio House campaigns in which the candidates were likely to support Householder's bid for Speaker. (Id. at ¶¶ 30, 36, 39, 76.) The Complaint also claims that large sums were spent on a campaign to defeat a referendum of HB 6 after it was passed, including media outreach, investigations to conflict out signature-collection firms, and bribery of signature collectors. (Id. at ¶¶ 34, 68.) Allegedly, the Householder Enterprise created other entities to feed Generation Now funds into, and foot the bill for these efforts, to conceal the source of funding. (E.g. , id. at ¶ 52.j.) Plaintiffs also claim that Householder utilized his unique procedural powers as Speaker to ensure the passage of HB 6 by appointing eight House members, replacing retired or deceased members, who were likely to support his efforts to pass HB 6. (Id. at ¶ 76.) Plaintiffs’ plead that the "volume of FirstEnergy's payments [to Generation Now], the timing of these payments" with actions taken by the Householder Enterprise to ensure the passage of HB 6, and the communications between Defendants and the Householder Enterprise coinciding with these payments and actions demonstrates a quid pro quo between FirstEnergy and the Householder Enterprise. (Id. at ¶¶ 59, 65.)
According to the Complaint, the Householder Enterprise received via Generation Now at least $2.9 million from FirstEnergy before Householder's election as Speaker of the House, meaning the vast majority of payments made by FirstEnergy came after Householder had secured his influential position. (Id. at 30–31.) Plaintiffs allege that on the day he was elected as Speaker in January 2019, Householder created a subcommittee on energy generation, mostly selecting his supporters and allies as committee members. (Id. at ¶ 63, 65.) Three months after Householder became Speaker, HB 6 was introduced. (Id. at ¶ 31.) Plaintiffs claim that he handpicked the House members who introduced the bill—all of whom received Generation Now funds for their campaigns. (Id. at ¶ 65.) Householder also "strong-armed House members" and pressured members of the Ohio Senate to pass the bill and the governor to sign the bill into law. (Id. )
HB 6, though widely characterized as nuclear "bailout" legislation (id. at ¶ 67), included other provisions that FirstEnergy won the inclusion of in exchange for its payments to the Householder Enterprise. The nuclear "bailout" provision appears as a "surcharge" and is capped per month at 85 cents for individuals and $2,400 for commercial customers. (Id. at ¶ 108 (citing Ohio Rev. Code § 2923.34(E) ).) FirstEnergy also secured "decoupling" and "legacy generation cost recovery" provisions, which would lead to higher costs for ratepayers. (Id. at ¶¶ 74–75.) According to Plaintiffs, experts estimate that Ohio ratepayers could pay as much as $355 million to FirstEnergy due to the decoupling provision alone and shoulder the cost of $16 million for the legacy provision. At bottom, FirstEnergy's goal was to secure for itself favorable legislation. (Id. at ¶ 97.)
On October 7, 2020, Plaintiffs filed the operative amended class-action complaint raising five counts. (ECF No. 19.) First, they allege that Defendants engaged in a pattern of racketeering activity by committing mail fraud, wire fraud, bribery, money laundering, and other offenses to obtain passage of HB 6 in violation of the federal Racketeer Influenced and Corrupt Organizations Act ("RICO"), 18 U.S.C. §§ 1961 – 68, and the Ohio Corrupt Practices Act, ("OCPA"), Ohio Rev. Code §§ 2923.31 to 2923.36. (Id. at ¶¶ 92–108.) Plaintiffs also raise state-law claims of civil conspiracy, injury through criminal acts, unjust enrichment, and negligence and/or gross negligence. (Id. at ¶¶ 109–19.)
Defendants subsequently filed the instant motion to dismiss for failure to state a claim. (ECF No. 25.) On December 21, 2020, a state court judge entered a preliminary injunction, enjoining Energy Harbor Corp., previously FirstEnergy Services, and various state officials and entities from accepting or collecting fees associated with HB 6. (ECF No. 34 (notation order); ECF No. 35-1.)
A complaint must contain "a short and plain statement of the claim showing that the pleader is entitled to relief." Fed. R. Civ. P. 8(a)(2). Rule 8 "does not require ‘detailed factual allegations,’ " but pleadings cannot consist only of "labels and conclusions," "formulaic recitation[s] of the elements of a cause of action," or " ‘naked assertion[s] devoid of "further factual enhancement." ’ " Ashcroft v. Iqbal , 556 U.S. 662, 678, 129 S.Ct. 1937, 173 L.Ed.2d 868 (2009) (quoting Bell Atl. Corp. v. Twombly , 550 U.S. 544, 555, 557, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007) ). In order to survive a motion to dismiss for failure to state a claim for which relief can be granted under Federal Rule of Civil Procedure 12(b)(6), "a plaintiff must ‘allege[ ] facts that "state a claim to relief that is...
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