In re Duke Energy Corporation Coal Ash Derivative Litigation

• Court: Court of Chancery of Delaware
• Decided: August 31, 2015
• Docket: CA 9682-VCN
• Status: Published

Opinion

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 cc: Register in Chancery-K