US appeals court wipes out order certifying FirstEnergy investor class action

By Mike Scarcella

Aug 14 (Reuters) - A U.S. appeals court has reversed an earlier decision allowing a group of investors to band together to sue Ohio electric utility FirstEnergy FE.N for billions of dollars in damages for alleged violations of federal securities laws.

The unanimous ruling on Wednesday by a three-judge panel of the 6th U.S. Circuit Court of Appeals in Cincinnati overturned a federal judge’s 2023 order certifying a class action against FirstEnergy, one of the country’s largest investor-owned electric systems.

The 6th Circuit called the order "defective" and directed the lower court judge to apply a more stringent legal standard that it said would serve as a new test for certifying class actions in similar cases.

The appeals court set a new standard for judges to weigh whether securities class action plaintiffs are alleging omissions in statements to investors, misrepresentations or a mix of both. Plaintiffs can face a higher bar to prove specific statements were misrepresentations.

Circuit Judge Danny Boggs, joined by Circuit Judges Eric Clay and Julia Smith Gibbons, also said the trial judge incorrectly overlooked a “rigorous-analysis” requirement in assessing the plaintiffs’ claim of $8 billion in damages.

In a statement, a lead attorney for FirstEnergy said the utility welcomed the court’s clarification on requirements for class certification.

“FirstEnergy will contest efforts to seek damages for losses that the company did not cause,” said Robert Giuffra Jr, who represented FirstEnergy in its appeal.

An attorney for the investors did not immediately respond to a request for comment.

The lawsuit by FirstEnergy shareholders and noteholders stemmed from a years-long bribery scheme involving the company’s payments to Ohio lawmakers. In 2021, FirstEnergy paid $230 million to the U.S. government to settle a federal criminal investigation.

Investors accused FirstEnergy of omissions and misrepresentations amid its failure to disclose the bribery scheme. FirstEnergy has admitted to making illegal political contributions but denied violating U.S. securities laws.

Lawyers for the investors argued to the 6th Circuit that “preventing investors from learning about the millions of dollars FirstEnergy was pouring into its criminal conspiracy was a central part of FirstEnergy’s deception.”

The U.S. Chamber of Commerce and Securities Industry and Financial Markets Association were among the groups that signed a court filing supporting FirstEnergy.

They warned the appeals court that leaving the trial judge's ruling in place would lower the bar for class certification and “increase the frequency of baseless securities fraud class actions.”

The case is Diane Owens et al v. FirstEnergy Corporation et al, 6th U.S. Circuit Court of Appeals, No. 23-3940.

For Owens: Jason Forge of Robbins Geller Rudman & Dowd

For FirstEnergy: Robert Giuffra Jr of Sullivan & Cromwell

Read more:

Tennis players suing NCAA over prize money can band together in class action, judge rules

US Supreme Court reverses decision to rule on class action question

Judge green-lights class actions over US turkey prices

Apple loses bid to appeal order allowing consumer antitrust class action