Cost of lawsuit can’t be determined
It’s the question on everyone’s mind since Socorro Electric Cooperative filed a lawsuit more than a year ago against all of its approximately 10,000 member-owners: How much is this going to cost us?
The answer is still unknown. Though a district court judge in May ruled against the co-op in its effort to block new bylaws that require the co-op to conduct business with greater transparency, he has yet to decide whether to award attorney fees and expenses to the lawyers who defended the case.
Judge Albert J. Mitchell Jr., appointed to the case by the New Mexico Supreme Court, has asked them to file motions for fees and some of them have. But there may be more to come, so there’s no telling how much — if any — the co-op will have to pay.
Nor has Mitchell decided what to do about a counterclaim that could keep the case in court a lot longer.
The judge has said he’s concerned about the eventual cost to member-owners of the private, non-profit corporation, who are footing the bill for a lawsuit they didn’t ask for. Following the guidance of its newly hired attorney, the co-op’s board of trustees voted to challenge the bylaws, asking for declaratory judgment and injunctive relief.
The countersuit requests class action certification and aims to minimize the damages to members. It holds the co-op officials responsible and calls for them to pay out of their own pocket.
“Our intent in pursuing the litigation is not to punish the co-op, per se,” said Steven Kortemeier, one of the attorneys handling the countersuit, “but have the people responsible for the action to be subject to disgorgement and the cost to bring it to light.”
That’s presuming the co-op’s insurance doesn’t cover it, which is still a matter of debate.
One question still unresolved is whether the co-op’s insurance coverage would pay for defending the countersuit. A clause in the contract with the company, Federated Rural Electric Insurance Exchange, indicates it is not responsible for coverage in “disputes between trustees.”
District 5 Trustee Charlie Wagner, a leader in the movement to reform the co-op, is named as the representative of the class in the class action proposal and all nine of the other trustees are listed as cross claim defendants.
These issues are expected to be addressed at the next hearing, which has not been scheduled. Attorneys have moved into the discovery phase, gathering evidence to submit to the judge to aid him in making his decisions.
Bracing for the Backlash
Though the main question cannot be answered, a few things can be learned from information Socorro Electric turned over to El Defensor Chieftain in response to an Inspection of Public Records Request. Attorney fees doubled during the year the co-op filed the suit and Socorro Electric is bracing for a hit this year with a proposed budget increase of $177,711 for outside services, the line item under which legal expenses are recorded.
Socorro Electric General Manager Joseph Herrera said in an interview last month that the primarily reason for the increase request was anticipated legal fees.
“As we were preparing the budget, we knew there would be more outside service activity with the class action (request),” he said.
Not all of the $400,000 allocated for outside services goes toward legal fees, Herrera said. SGS Engineering, an Albuquerque consulting firm that assists the co-op on everything from rate design to construction projects, also is paid from that account, but Herrera said the co-op plans to cut back on utilizing SGS in the future and handle more things in-house.
Herrera said the co-op’s budgeting didn’t account for damages that could be awarded should the judge accept the class action proposal and the co-op lose the case.
“That’s just to cover attorneys fees,” he said. “We’re not betting on winning or losing, it’s just defending the countersuit.”
Rising Costs
To be sure, Socorro Electric is going to run up legal bills simply as a cost of doing business. No corporation in this day and age can do without assistance in dealing with contracts, policies, personnel and a wide range of other legal matters.
In the two years leading up to the lawsuit, Socorro Electric spent an average of $38,236.22 per year on attorney costs.
In 2008, the co-op paid $40,533.30 for legal services to then-corporation attorney JoAnna Aguilar. Costs dipped in 2009, totaling $35,939.13, with payments to Aguilar accounting for $21,659.68 and Albuquerque’s Kennedy & Han law firm billing $14,279.45.
Attorney Paul Kennedy was hired on retainer to handle aspects of the co-op’s business, including litigation.
The co-op had just one lawsuit on its hands during those years — a case against co-op member Charlene West of Lemitar, another leader in the movement for reform and ultimately the only individual named in the co-op’s separate lawsuit against all of its unnamed members. As the result to two incidents involving trustees, a restraining order was filed against West and she’s no longer allowed to attend board meetings.
But payments to attorney jumped to $72,083.67 in 2010 when the co-op filed its lawsuit midyear. Nearly all of it, $68,282.00, was paid to Dennis Francish, who took over as the co-op’s attorney at the tail end of 2009.
The Cost of Counsel
The circumstances of surrounding Francish’s hiring were unusual. The board of trustees called a special meeting days before the terms of three trustees defeated in district elections was to expire. That denied the three incoming trustees, elected as reform candidates, the opportunity to have a say in the hiring of a new attorney.
A copy of the signed contract obtained from the co-op shows ” Jan.__, 2010,” typed in as the date of the contract, but it was scratched out. Hand written in its place was “Dec. 28, 2009,” the date of the special meeting at which he was hired. The new trustees were to be sworn in at the first meeting of the year.
The contract with Francish, who previously served a two-year stint as the co-op’s attorney, is for two years and expires Dec. 31 of this year. It identifies him as an independent contractor, not an employee, and he is to serve as legal counsel “in all corporate matters requiring client’s business and corporate interests.”
The contract states that he “shall use his best efforts to secure positive results and good legal protection for Client. Attorney shall diligently pursue Client’s business and legal interests seeking positive results.”
The Albuquerque attorney is paid $190 per hour and reimbursed at 55 cents per mile, plus gross receipts. He’s also entitled to expenses and/or reasonable per diem for attending seminars and meetings at which business pertaining to the co-op is addressed.
Francish serves as attorney for Continental Divide Cooperative as well, so the contract states that some travel and lodging expenses may be shared between the two co-ops.
The contract includes a disclaimer: “Attorney does not guarantee favorable results in all matters.”
In all, Francish has been paid $96,346.76 over the past 1 1/2 years, having billed $28,064.76 through the first six months of 2011. But that’s not representative of the total cost of the co-op’s litigation.
There’s another $3,400 paid to another Albuquerque attorney, Lorna Wiggins, for settling a complaint with a former co-op manager.
And, a bigger bill may be forthcoming.
More to Come
Attorney Paul Kennedy, a former New Mexico Supreme Court justice, has attended all of the hearings on the co-op’s behalf, and his associate, Darin Foster, has handled many of the court document filings. But the Kennedy & Han law firm has yet to bill the co-op for any of it. The last payment to the firm on Jan. 5, 2010, was for $2,096.63, presumably for work performed during 2009 – months before the lawsuit was filed.
Kennedy confirmed as much during an Aug. 8 phone interview. He said there was no particular reason why his firm hasn’t charged the co-op, but he was certain it would eventually get a bill.
“We’ve been waiting on the class action part of it. We’ll probably bill them for everything up until now,” he said.
Kennedy said Francish handled most of the work on the co-op’s initial lawsuit, and his involvement was minimal. He said he didn’t “have the vaguest idea” how many hours his firm has put into the case or for how much would eventually be billed.
“Whatever it is will be eminently reasonable,” he said.
Kennedy said the rate for his services are $450 per hour, while Foster, who he said handled most of the work his firm has done on the lawsuit, bills at $200 per hour.
Now that the case has moved on to class action consideration, Kennedy, who has experience in such matters, said he plans to become more involved. A class action suit would take many months to settle, “or even years,” Kennedy said.
Editor’s Note: Socorro Electric’s attorneys aren’t the only ones incurring costs the co-op may wind up paying for. Lawyers who defended the case are seeking fees, as well.
A second part to this story will take a look at what they are seeking in terms of compensation and how that may, or may not, affect members.
Contact T.S. Last