SEC suit moves forward in court

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Despite protests that they were never actually party to litigation against the Socorro Electric Co-op, a district court judge allowed for the filing of an amended complaint to replace a SEC board of trustees member with two other member-owners as the class action representative.

On Thursday, Judge Albert J. Mitchell Jr. ruled that Carol Auffrey of Quemado and Herbert Myers of Socorro could replace SEC Trustee Charlie Wagner as representatives of the class in the countersuit, which asks for class action certification.

The initial cross claim, filed in August 2010 in response to SEC’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.

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 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.

Through the co-op lost the lawsuit, Mitchell 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.

The judge also ordered that because “the law expects certain people to have certain titles,” going forward, Auffrey and Myers would be the plaintiffs and SEC will be the defendant. Mitchell said Wagner would not be dismissed as the class representative until the amended complaint had been filed.

“This is not about technicalities,” Mitchell said. “It’s about details. This will keep Mr. Wagner in until we have another party.”

Mitchell earned a chuckle from the dozen spectators when he said going forward, this would be “a simple class action case.”

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.

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 $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.

On Thursday, Darin Foster, the attorney representing the SEC, argued that the amended claim was nothing more than an attempt to “sneak in a substitute party.” Foster said Auffrey and Myers were not parties to the case.

“The litigation was brought against all the members. Those who did not answer, were dismissed. It’s like they didn’t exist,” Foster said. “Now they want to come in and take Mr. Wagner out, put new plaintiffs in and file an entirely new suit.”

Foster said amending the claim would reframe the class, making the case more complex and expensive. He also said Wagner did not respond to the original lawsuit brought by the co-op

Ikard countered that Wagner did indeed reply, noting that every filing was footnoted with the caveat that the filing was on behalf of Auffrey and Myers.

“That was based on the assumption that the court would grant leave to file,” Ikard said. “There is no question that the defendants in this case were only dismissed because the court required dismissal.

“Previous lawyers allowed service by publication.”

He added that all trustees will be excluded as members of the class. Trustees all live within the SEC service area and are themselves member-owners; in essence the board of trustees sued itself in 2010.

When he made his determination, Mitchell said he felt the case would be different if Wagner had originally filed the lawsuit.

“SEC made the decision to get into litigation with all its members. Was it a wise decision? Whether it was or not, the decision was made by the board that they want to litigate with all its members,” Mitchell said. “The case has been well publicized. Everybody knows there is litigation going on. The concerns raised by the co-op is valid and they will be reviewed as we go forward.

“In the interest of justice and judicial economy, at this point in this case, I will allow the amended complaint,” the judge ruled.

Mitchell directed that under the SEC bylaws, the matter be placed on the co-op’s agenda for its July 25 board meeting. Mitchell instructed attorneys to have a final amended complaint ready for presentation at a status hearing three to four weeks after that meeting.

He and the lawyers estimated that by the time all the filings are done and responses completed, the matter should be ripe to come back before the judge in mid- to late-November.

The money issues

At the outset of the hearing, Mitchell addressed an issue that has been dragging on since the beginning of the year — the dismissal and payment of attorney Thomas Fitch.

Fitch, along with law partner Polly Ann Tausch, was one of the attorneys who defended the original case SEC brought against its member-owners.

The judge had previously agreed to temporarily delay payment to all the attorneys involved, totaling $13,000. During the hearing Thursday, Mitchell ordered SEC pay Fitch $2,000, and that he be released from the case. Fitch and Tausch previously submitted a billing statement for more than $3,800 for their work on the case.

Mitchell also directed that Fitch be notified if the co-op appealed the original case.

In May 2011, Mitchell ruled in a landmark case in which Socorro Electric Cooperative sued all of its approximately 10,000 member-owners in an effort to block three bylaws — each aimed at increasing transparency — passed by members at the 2010 annual meeting.

The ruling meant that the democratically controlled rural electric utility must abide by the New Mexico Open Meetings Act and Inspection of Public Records Act — state legislation incorporated into the co-op bylaws by the members two years ago.

In the ruling last year, Mitchell said the co-op should have been following the bylaws since they were adopted on April 17, 2010.

Stephen Kortemeier, with Deschamps & Kortemeier law firm of Socorro, agreed to let the fees his company was seeking be placed into the registry of the court within 30 days, so that the monies could be paid out once litigation was finalized on the original case.

 


-- Email the author at jdendinger@news-bulletin.com.