A recent Law 360 story by Hannah Albarazi, “FirstEnergy Investors Get $180M OK’d, But Atty Fees Cut” reports that an Ohio federal judge gave final approval to FirstEnergy Corp.'s $180 million settlement with investors who brought derivative suits over a bribery scandal embroiling the electric utility company and the state legislature, while reducing the attorney fees in the case by more than $12 million. U.S. District Judge Algenon L. Marbley lowered the plaintiffs' attorney fees from the roughly $48.6 million they requested to $36 million and granted final approval to the $180 million settlement, ending shareholder derivative actions over the so-called HB6 scandal and clearing the path for a slate of corporate governance reforms to begin.
The granted attorney fees represent 20% of the settlement pot, as opposed to the 27% that plaintiffs' counsel requested. The judge said he extensively deliberated about the factors that went into the fee award and said the figure he arrived at "appropriately accounts for counsel's labor, risks and results" in the case. Among other things, he noted a lack of depositions that "would have demanded more intensive labor and, thus, greater risks under the contingent fee arrangement" and a "recognition of the advantages to 'coattailing' a major government investigation."
"If FirstEnergy cannot be made perfectly whole in monetary terms, then the next-best outcome is to repair its reputation with prompt, forward-looking reforms designed to prevent a recurrence of the alleged conduct. The proposed settlement meets that mark," Judge Marbley further wrote in his order. He noted that this settlement captures about 82% of the available insurance coverage, which is the main source of recoverable assets.
The lawsuits consolidated in the Southern District of Ohio revolved around a scheme by FirstEnergy to bribe then-Ohio House Speaker Larry Householder in order to receive a $1.3 billion bailout of its nuclear power plants. The company admitted in July 2021 to paying the bribe and paid a $230 million penalty to escape prosecution.
U.S. District Judge John Adams, who is overseeing the case in the Northern District of Ohio, has spoken out against the settlement in the Southern District of Ohio, accusing the parties of forum shopping in order to find a court more favorable to the proposal than his. Judge Adams has refused to dismiss the case before him and has called for the appointment of new lawyers to oversee that case.
But a special litigation committee composed of independent directors of FirstEnergy objected to the attorney fees, arguing that the plaintiffs weren't alone in working to improve the company. The committee told the court that it helped institute some of the corporate reforms that shareholders' attorneys were trying to take credit for as part of the settlement.
Plaintiffs' counsel have told the court that the settlement — which is funded by the company's insurers — is "among the largest derivative recoveries ever achieved" in the U.S. and is "three times greater than any prior derivative recovery in the history of the Sixth Circuit."
In his order, Judge Marbley didn't get distracted by the record-breaking settlement amount. "Still, the monetary component of the settlement deserves some scrutiny," he wrote. "While the recovery is substantial, so too were the harms resulting from the alleged bribery scandal."