Countersuit filed against co-op
A lawsuit taking aim at Socorro Electric Cooperative officials, alleging breach of fiduciary duty and fraud, was filed in 13th Judicial District Court in Los Lunas on Tuesday, Aug. 24.
The cross claim and request for class action certification comes in response to Socorro Electric’s lawsuit against its approximately 10,000 member-owners. The co-op’s filing nearly two months ago challenges three of a bevy of reform-related bylaws overwhelming passed at the annual meeting in April.
All three bylaws being contested address transparency of governance, calling for meetings to be open to members and the press and allowing them access to co-op records, data and audits with some limitations.
Named as the representative party for the class of member-owners is Charlie Wagner, a member of Socorro Electric’s board of trustees and a leader in the movement to reform the co-op.
While Wagner’s name is attached, he said the counter claim is really for the benefit of member-owners.
“This is simply about correcting what has been generations of disobeying bylaws and using the trustee position to increase trustees’ income,” Wagner said. “They (trustees) have wasted a great deal of corporate assets on improving benefits for themselves, while neglecting the interests of members. Instead of working on behalf of members, they’ve actually worked against the interests of members.”
Named as defendants in the countersuit are trustees Luis Aguilar, Leroy Anaya, Jack Bruton, Paul Bustamante, Leo Cordova, Prescilla Mauldin, Milton Ulibarri, Dave Wade and Don Wolberg; former trustees Harold Baca, Juan Gonzales, Manny Marquez and Herman Romero; and General Manger Polo Pineda Jr., who is now on administrative leave while an investigation into financial irregularities is being conducted.
Filed Tuesday afternoon (Aug. 24) in Valencia County, none of the co-op officials, nor Socorro Electric attorney Dennis Francish, had seen the 31-page document so they were unable to comment before El Defensor Chieftain deadline.
The team of attorneys representing Wagner and the class of member-owners includes law partners Lee Deschamps and Stephen Kortemeier of Socorro.
Significantly, also on board is one of the lawyers who helped win a monumental class action lawsuit against the largest rural electric utility in the country.
Austin, Texas, attorney William “Bill” Ikard represented plaintiffs in a class action suit that won a $23 million settlement against Pedernales Electric Cooperative in 2009. The judgment led to a complete overhaul of the Pedernales board and top management and drastically changed the manner in which that co-op goes about its business.
Ikard, who is listed as lead attorney in the case, said during a phone interview that the issues surrounding Socorro Electric and those dealt with in the Pedernales case are similar.
“There are marked differences mainly based on the size,” he said, noting that Pedernales serves roughly 225,000 customers as compared to the 10,000 or so served by the Socorro co-op. “But the issues of absence of democracy, failure to provide good governance, transparency, abuses in expenses and salaries are very similar. The allegations are, frankly, beyond dispute. The claims have merit and it needs to get its day in court.”
Ikard said he’s also currently engaged in another lawsuit of a similar vein involving Nueces Electric Cooperative in southern Texas.
Kortemeier said Ikard’s experience in such cases can only serve to benefit the effort in Socorro.
“One of the requirements for a class action is the party has to certify to the court that they have experience in class action, and this is where Mr. Ikard proves invaluable,” he said. “The second thing is in dealing with these issues, he has the map. Having been there before, he knows what it looks like. It’s like going hunting with a guide.”
Ikard’s law partner, Anne S. Wynne, and William Kilgarlin, a former Texas Supreme Court Judge affiliated with the firm, are also listed as lawyers for the cross claim plaintiffs.
The counterclaim targets the trustees who voted in May to challenge the newly adopted bylaws with a lawsuit against member-owners. Also named are four longstanding former trustees, three of whom were defeated in district elections last year as the reform movement gained momentum (Baca, Gonzales and Romero) and another who resigned earlier this year (Marquez).
Pineda is named individually and in his capacity as general manager.
“This class action lawsuit is not intended to harm the SEC or its service to its members, and neither is it aimed at the rank-and-file dedicated employees,” the document reads. “Instead, this lawsuit seeks to place responsibility on the trustees and officers for a variety of wrongful practices, to recover on behalf of member-owners for the damages caused by these wrongful practices, and to reform the organization so that it operates democratically, transparently, and in the best interest of its members.”
The suit lists 16 counts against the defendants covering a wide range of alleged improprieties.
The lawsuit claims defendants breached fiduciary duty by:
• Maintaining a system of grossly unequal election districts contrary to the co-op’s bylaws
• Imposing and maintaining restrictions on voting
• Failing to follow contractual responsibilities set forth in the Rural Electric Cooperative Act and the co-op’s own bylaws
• Failing to manage the co-op democratically and with transparency in the best interest of its member-owners
• Mismanaging finances and accounting records
• Paying excessive compensation to trustees and “key” employees in the form of per diem, reimbursements and benefits
Further, the suit alleges that the co-op officials “have and continue to deceitfully conceal their wrongdoing and fraudulently conceal their unlawful conduct in order to avoid liability for it.”
In stating its position, the lawsuit claims defendants “are liable for exemplary damages based on malice, willful, reckless or wanton behavior, fraudulent behavior or acts or omissions done in bad faith.”
The countersuit calls for the court to remove the defendants from their positions and replace them through a method determined by the court. It asks the court to make the defendants pay back the money deemed to be in excess of reasonable compensation out of their own pockets.
To determine the extent of damages, it calls for the court to enter judgment requiring an independent accounting of all transactions for the past 10 years.
In addition, member-owners are to receive patronage capital payments, which otherwise should have been retired and repaid.
As a private, non-profit organization, member-owners are to share in the profits the co-op earns.
Finally, the suit calls for the defendants to pay the plaintiffs’ attorney fees and court costs.
Contact T.S. Last