PEC Lawsuit Settlement
David Allen Hall
Texas Bar No. 24036705
P.O. Box 1540
Blanco, Texas 78606-1540
(please be sure to insert your own name and contact info, and add/delete/re-word with YOUR OWN objections.)
JOHN WORRALL, et al.,
PEDERNALES ELECTRIC COOPERATIVE, INC. et al.,
IN THE DISTRICT COURT
OF TRAVIS COUNTY, TEXAS
353rd JUDICIAL DISTRICT
OBJECTIONS TO SETTLEMENT AGREEMENT
Pedernales Electric Cooperative (PEC) Member Your Name (Petitioner)
submits objections to the proposed Settlement of the captioned matter.
Petitioner concedes paragraph 4f of the proposed Order Entering Final
Judgment, that the lawsuit contributed to beneficial changes at the PEC, and
Petitioner agrees with the first part of paragraph 4g of the Order, that the
Settlement allows PEC to again focus on operations. However, Petitioner
disagrees with the second part of paragraph 4g, and respectfully submits
that the PEC goodwill, present and future, is not served by a Settlement
that allows financial and moral abuses to go unpunished and, with
unwarranted bonuses, benefits, and massive immunity, actually rewards bad
behavior. Petitioner particularly disputes the contention in paragraph 4k
that the Settlement is in the best interest of the PEC.
The Fifth Circuit has declared „Our cases instruct that the district court‚s
exercise of discretion is to be tested by inquires that ensure that the
settlement is in the interest of the class, does not unfairly impinge on the
rights and interests of dissenters, and does not merely mantle oppression.‰
Ayers v. Thompson, 358 F.3d 356, 368-369 (5th Cir. 2004). The Ayers court
listed six factors with which they review a decision to approve a settlement
agreement resolving a class-action suit. Id. at 369. The first factor, the
existence of fraud or collusion behind the settlement has yet to be
thoroughly investigated. The last factor includes the opinions of absent
class members and is, thanks to the court‚s offering of opportunity to
submit objections, just now being addressed.
Petitioner firmly believes that the PEC Directors‚ election on June 21, 2008
will inaugurate a sea change of PEC governance. Because of staggered terms
and only a single resignation to date, there is not a possibility of
electing a new majority of voting Directors. However, the pervasive
negative press coverage and public outcry make it likely that there will be
three new voting Directors and two new Advisory Directors after the June
election. Furthermore, the recent, new-found voice of public opinion,
Senator Troy Fraser‚s vow to legislate changes absent satisfaction of
demands for accountability and transparency, and the newly installed upper
management team will most likely continue to build motivation for
abandonment of the PEC status quo. In other words, after the June election,
there will most likely be a majority vote for new PEC governance.
Petitioner contends that the Settlement is not, as Ayers requires, in the
best interests of the majority of PEC Members. Because details are just now
being disseminated, and because there appears to be pressure to have it
approved before material investigations can be completed, the Settlement is
essentially a take-it-or-leave-it agreement, i.e., a contract of adhesion.
CONTRACT OF ADHESION
According to definitions in Settlement Recital MMMM and paragraphs 1.1 and
1.15, „Settling Parties‰ includes all PEC Members. That renders the
paragraph 4.12 claim that all Settling Parties participated in the drafting
of the agreement conclusory, self-serving, and incorrect. Very few PEC
Members participated in or even were aware of details of the agreement until
they received the April 8, 2008 letter from the PEC that gave an
inadequately brief summary and failed to mention the many unfavorable
provisions. The letter directed Members to the PEC website for viewing of
the complete agreement, a „convenience‰ not available to all Members. Such
notice violates the spirit, if not the letter of paragraph 2.2 (c) that
requires notice by mail.
As are most contracts of adhesion, the Settlement is egregiously unbalanced.
All but a single provision are beneficial only to the perpetrators of the
decades long violations of fiduciary duty:
(1) Paragraph 1.11 mandates PEC pay any former Director or
employee lifetime pay and benefits for any written or oral agreement, even
if made in a closed meeting or over drinks in a dark room.
(2) Paragraph 1.12 enforces the Settlement with respect to any
trust that benefits any former Director or employee or his agents,
representative, or attorneys, Kimble Electric Coop, Envision Software, or
Texas Skies. A trust fund for the former General Manager‚s life time health
care would therefore be protected, as would an orally promised trust for the
benefit of his attorney.
(3) Paragraph 1.15 quashes all Members‚ rights to opt-out of the
(4) Paragraph 2.2(e) requires PEC, exclusive of Directors and
employees, and its insurer AIG to pay all costs up to $4 million. This
clause is contradictory. It excuses past and present employees from the
payment obligation, but in fact all employees who are also PEC Members will
indirectly pay a portion of the costs through lost opportunity due to the
reduction in their capital credits proximately caused by the payment of
costs out of PEC funds. This contradiction is exacerbated by the
cost-shifting created by AIG‚s agreement, negotiated with the present PEC
Board, which relieves AIG of its duty to cover all defense and settlement
costs less a deductible.
(5) Paragraph 2.2(g) calls for an „investigation‰ by Navigant,
and paragraph 3.1(d) refers to the Navigant „Review.‰ Navigant‚s website
does not mention audit services, and nowhere in the Settlement is Navigant‚s
participation labeled as an audit, which creates the obvious question, „Just
what is Navigant going to do, and how deep are they going to dig?‰ If the
Settlement negotiators intend the Navigant Review to be weighed in favor of
the Members, its weight can only be speculative. Because open, certified
audits will be routine in PEC‚s future after the June 21, 2008 election, the
Navigant Review is actually illusory consideration.
(6) Paragraph 3.1(a) releases all Defendants from all claims of
any kind, known or unknown, suspected or unsuspected, that might be asserted
in the future based on, among other things, negligence, fraud,
mismanagement, waste of assets, conspiracy, or breech of fiduciary duty.
Paragraph 3.1(a) also releases all Defendants from all claims concerning
disposition of capital credits, Director compensation, benefits, and travel
and entertainment expenses, subsidiary investments, and bylaws violations.
(7) Paragraph 3.1(d) shields the Defendants from any claims
arising out of the results of the Navigant Review.
(8) Paragraph 4.7 drives the last nail in the lid of the box
hiding malfeasance. It anoints the Settlement as a bullet-proof defense
against any future administrative, civil, or criminal proceeding.
Paragraphs 3.1(a) and 4.7, a veritable Christmas list for the Defendants,
substantially outweigh any Member benefits.
(9) Paragraph 2.2(d) provides for disbursal of $23 million of
capital credits, is the sole Member benefit in the Settlement, and is
illusory because it will most likely be implemented by vote of the new Board
soon after the June 21, 2008 election.
May it please the court;
Petitioner respectfully requests consideration of two concurrent or
alternative remedies to the above-stated objections:
(1) Reform. Reform the Settlement to require the 19 Defendants
pay costs. At this time, the Settlement, together with the AIG agreement,
requires PEC Members to pay $1.4 million in costs. Using only the data it
has to date been able to obtain from PEC, the Senate Business and Commerce
Committee‚s preliminary estimate of the total cost of abuse ($40-$50
million) approximately equals a year‚s billing due to the 11% rate increase
imposed in April, 2008. Senator Troy Fraser, public hearing, State Senate
chamber, March 27, 2008. Therefore, the Settlement actually forces Members
to pay twice for Defendants‚ bad acts˜once, over many years out of coop
accounts, and a second time to pay the legal fees required to pressure the
perpetrators to stop the malfeasance. In view of the admitted and alleged
financial excesses, fairness and the doctrine of deterrence require that
costs should be borne by the Defendants, rather than the Members.
(2) Stay. Stay court approval of the Settlement until some
reasonable time after conclusion of the Senate, criminal, and Navigant
investigations. Senator Fraser indicated in his March 27 hearing that his
investigation will continue for 9 more months. The Blanco County District
Attorney has requested investigation assistance from the State AG office.
The results of the investigations could possibly have a strong impact on
Settlement negotiations, and nothing will be gained by rushing to impose a
settlement before all material facts are discovered. By that time a new PEC
Board will most likely have distributed capital credits, thus making moot a
significant demand of the original litigation.