Attorneys amend complaint vs. co-op

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Attorneys representing member-owners of Socorro Electric Cooperative filed an amended countersuit against the co-op in 13th Judicial District Court in Los Lunas on Monday. The amended version retains many of the same charges of breach of fiduciary duty by members of the co-op’s board of trustees and the former general manager, but differs from the original complaint by naming different parties to the lawsuit.

The initial cross claim, filed in August 2010 in response to Socorro Electric’s lawsuit against its members, named current and former co-op officials individually as defendants. This one lists Socorro Electric Cooperative, Inc. as the cross claim defendant.

In addition, Carol Auffrey of Quemado and Herbert Myers of Socorro are named as cross claim plaintiffs and representatives of the class in the countersuit, which asks for class action certification. They replace Charlie Wagner, a member of the board of trustees and a leader in the movement to reform the co-op.

The countersuit came in response to a lawsuit Socorro Electric filed against all of its approximately 10,000 member-owners in June 2010 in an effort to block new bylaws that require it to operate with increased transparency. Though the co-op lost the lawsuit, Judge Albert J. Mitchell Jr. allowed the case to continue to consider the merits of the countersuit. He has yet to decide whether he’ll accept it or certify the class, but opened the case up to discovery to assist him with the decision.

A status hearing was scheduled for Wednesday in district court in Los Lunas, but an aide in Judge Mitchell’s office said Friday that hearing will be postponed due to recent filings.

Unraveling Knots

If the amended version is accepted by the judge, it could potentially untie some snags created by the original countersuit.

Wagner, who has been excused from recent executive sessions during co-op board meetings because he was a party in a case against his colleagues, appears to be in the same boat with the rest of them in the amended complaint. It could also remove a stumbling block pertaining to whether Socorro Electric’s insurance carrier is able to provide coverage to defend the case. Co-op attorneys have said Federated Rural Electric Insurance Exchange has interpreted the countersuit as a dispute between trustees, because of Wagner’s involvement, and such disagreements are an exception to providing coverage.

The amended countersuit includes many of the same charges as the first version. It claims:

  • the co-op long maintained a system of unequal and improper voting districts;
  • patronage capital was withheld from members at times when they should have received payments;
  • members of the board of trustees received excessive amounts of compensation;
  • board members breached their fiduciary duty in numerous ways, including with regard to contractual obligations to co-op members and reporting financial and accounting records.

A copy of bylaws Socorro Electric was operating under prior to Judge Mitchell’s order to update them last year is included as an exhibit.

Requesting Records

In support of its argument that trustees received excessive compensation, the amended countersuit cites the amount of compensation received by several board members, as reported by the co-op on IRS 990 forms.

“On information and belief, compensation received by the board of trustees of the SEC, including former trustees and officers, are many multiples of the compensation paid other similar persons working in similar positions for similar organizations,” the complaint reads.

It goes on to claim “The SEC’s conduct in failing to report or reporting inaccurate information to the IRS constitutes a breach of fiduciary duty to the cross-claim plaintiffs and to the class.”

The complaint states that members were not notified of patronage capital — money members of the private, non-profit corporation accrue over time when the operation is profitable — contrary to the bylaws and Rural Electric Cooperative Act.

The filing seeks injunctive relief from the judge to realign voting districts:

“Cross-claim plaintiffs and the class request that the court enter an order that provides for and requires the formation and implementation of new, revised trustees’ election districts in a manner the court deems practicable in accordance with the spirit of ‘one man, one vote.’”

A redistricting plan will be up for vote by the co-op’s membership at the annual meeting on April 14.

Not Immune

The complaint also asks for the judge to order the co-op to provide accounting records for the past 10 years and to appoint an independent accounting firm to review them.

While individual trustees and former co-op officials are no longer specifically named in the amended complaint, the revised version still asks that they be held accountable and be disgorged for all expenses and compensation deemed excessive.

The complaint asks the judge to “Enter judgment that SEC is liable for exemplary damages based on malice, willful, reckless or wanton behavior, behavior or acts or omissions done in bad faith by the SEC or the board of trustees in an amount sufficient to punish SEC and to deter similar conduct in the future.”

Members would be entitled to damages in the amount of patronage capital that the complaint claims should have been retired and paid to them during the relevant time period, and attorneys representing members would be awarded fees.

The amended complaint was filed by William “Bill” Ikard of the Ikard Wynne law firm of Austin, Texas, which in 2009 helped win a class action settlement against Pedernales Electric Cooperative that resulted in a $23 million being returned to members in the form of patronage capital. Ikard Wynne has been working in concert with the Deschamps & Kortemeier law firm of Socorro, attorneys for Auffrey and Myers.

 


-- Email the author at tslast@dchieftain.com.