[Watchdogs] "Co-op legal challenge continues" "Appeal of PEC settlement reminiscent of David versus Goliath" [Austin American-Statesman]

[Milton Hawkins]

 <http://www.statesman.com/> statesman.com

 



 

 


 

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PEDERNALES ELECTRIC CO-OP


Co-op legal challenge continues


Appeal of PEC settlement reminiscent of David versus Goliath


By Claudia Grisales
AMERICAN-STATESMAN STAFF 
Sunday, September 07, 2008 

David Allen Hall is outnumbered, outlawyered and outspent in his appeal of a
settlement in a landmark lawsuit against Pedernales Electric Cooperative.

The retired IBM Corp. engineer-turned-patent lawyer from Blanco is pressing
his first appeal since he graduated from law school six years ago. He's up
against a team of veteran litigators from three big-city law firms. Their
clients are the defendants - including current and former leaders of the
co-op - as well as three co-op members who are plaintiffs in the lawsuit,
filed early last year.

Hall, a Pedernales member, wants to keep alive the lawsuit that changed the
face of the Johnson City-based co-op, the largest member-owned utility in
the country. By the time the proposed settlement was reached in March, the
case had forced a series of explosive disclosures - including lavish
expenditures and pay bonuses at the nonprofit utility - and subsequent
resignations of top executives and several directors.

To induce him to withdraw his appeal, Hall said, he was asked by others who
want to end the litigation to "name a number" and was offered a seat on the
Pedernales board. He declined.

"I've said this from the beginning, I'm not in this for the money," Hall
said.

Said Bill Ikard of Ikard Wynne, the firm representing the three plaintiffs:
"I am very disappointed that Mr. Hall would breach the confidentiality
ordinarily expected in settlement negotiations. ... I am not aware of any
proposal that he was offered any money."

Hall's legal brief claims the settlement is a result of "fraud and
collusion" between the judge, the parties to the case and their attorneys
and that it keeps defendants from being held accountable for past actions.
He won an important victory last month when the 3rd Court of Appeals
rejected a motion to dismiss his appeal. The opposition has until Oct. 8 to
file its answer to the appeal.

"We have complete confidence we will prevail," Ikard said. Hall's opponents
also include two appellate experts: David Duggins, a 30-year legal veteran
with Clark, Thomas, Winters, as well as Jane Webre, a nearly 20-year legal
veteran who is with Scott, Douglass & McConnico, the firm representing the
individual Pedernales defendants, including former general manager Bennie
Fuelberg, former board president W.W. "Bud" Burnett and co-op directors.

Hall said he rejected other inducements to withdraw, including a stipulation
that two voting directors, Vi Cloud and Val Smith, would not seek
re-election in June 2009 and that another longtime but unnamed voting
director would resign now, Hall said.

When asked about the offer Hall described, Cloud said Friday, "I don't know,
but I have not said I would not seek re-election." Smith could not be
reached for comment.

There are currently three vacancies on the Pedernales board, with the
resignation in recent months of advisory directors Libby Linebarger, Kenneth
Kennedy and Stuart Nunnally. It's unclear how they will be filled, but co-op
bylaws allow board members to appoint someone to fill the vacancies for the
remainder of their terms.

A provision in the settlement giving individual defendants a broad shield
from future civil lawsuits related to claims in the case became a major
concern for members opposing the settlement, and new financial disclosures
have fed that opposition.

"The people that perpetuated all the abuses on the co-op should not get off
with total immunity," Hall said. "In light of all that has come out lately,
there is every reason to believe there was possible malfeasance."

In his 55-page brief, Hall cites 11 errors by the trial court that approved
the settlement, including his contention that District Judge John Dietz
compromised his role in the case by immersing himself in the negotiations.

"By stepping off the bench and into the role as deal maker, the trial judge
robbed putative class members of his objectivity," Hall wrote. "The irony
that a class action filed to end backroom deals ... was settled behind
closed doors ... is not lost on members. The lawsuit that promised to bring
openness to PEC governance settled for cloaking the past."

Hall challenged Dietz's finding that the settlement was approved by "duly
authorized independent and disinterested directors" because those same
directors "would enjoy generous irrevocable lifetime medical benefits and
vast immunities if the settlement were approved."

Terms of the settlement also include $23 million in bill credits to
Pedernales customers; an internal review of Pedernales' books by
Chicago-based Navigant Consulting Inc. and payment of $4 million in fees to
the plaintiffs' lawyers. Except for the lawyers fees, the appeal has not
blocked the rest of the deal from going forward.

Only one board member, Patrick Cox, who was elected in June, supports Hall's
appeal. Other co-op directors and executives, including current General
Manager Juan Garza, staunchly defend the settlement.

"I believe that continuing litigation at the district court would have come
with the certainty of higher legal costs borne by the membership but without
the certainty of the results," said Garza, who joined Pedernales in
February, in a four-page statement issued last month.

Milton Hawkins, a co-op member who supports the appeal, says dozens of
members have donated to Hall's cause, and the group has raised $6,300 to
cover court costs.

"We are grateful to all who have helped in any way to keep this effort
going," he said.

In August, after co-op management disclosed a previously unknown bank
account at Cattleman's National Bank, Fuelberg and Burnett admitted that
they and the co-op's late general counsel, A.W. Moursund, had paid
themselves $373,200 out of the account in the late 1980s. The co-op has
since taken steps to regain control of the remaining $565,000 balance in the
account, held in the name of a failed co-op business venture called Texland
Electric Cooperative Inc.

Fuelberg and Burnett were listed as signatories on the account, which did
not bear interest. The two have recently hired Austin public relations
consultant Jason Stanford of Stanford Research. His firm worked on behalf of
Democrat Chris Bell's failed bid for governor in 2006 as well as his current
bid for a Houston state Senate seat.

Last Sunday, the American-Statesman published an op-ed statement from
Fuelberg and Burnett that defended taking the money as payment for their
efforts on behalf of Texland a decade earlier. Although they said they had
informed Pedernales of their action, Garza challenged that assertion.

In today's editions, Garza responded with his own op-ed piece.

"The statement they provided appears to be inconsistent with information
available to PEC, reports from current board members and, in some instances,
logical thought," Garza wrote.

cgrisales at statesman.com, 912-5933

 

Milton Hawkins    mhawkins at tstar.net     830-868-9075

 

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