Duke Energy 2011 Annual Report Download - page 154

PART II
DUKE ENERGY CORPORATION •DUKE ENERGY CAROLINAS, LLC •DUKE ENERGY OHIO, INC. •DUKE ENERGY INDIANA, INC.
Combined Notes to Consolidated Financial Statements – (Continued)
purchased generation assets from the state. On August 10, 2011, a
judge granted an ex parte injunction ordering DEIGP to present,
within 60 days of service, a detailed expansion plan in satisfaction of
the 15% obligation or face civil penalties in the amount of
approximately $16,000 per day. Both DEIGP and ANEEL have
previously taken a position that the 15% expansion obligation is no
longer viable given the changes that have occurred in the electric
energy sector since privatization of that sector. After filing various
objections, defenses and appeals regarding the referenced order,
DEIGP submitted its proposed expansion plan on November 11,
2011. The Court ordered the State of São Paulo to file a response to
the proposed plan. That response is outstanding.
Duke Energy Retirement Cash Balance Plan.
A class action lawsuit was filed in federal court in South
Carolina against Duke Energy and the Duke Energy Retirement Cash
Balance Plan, alleging violations of Employee Retirement Income
Security Act (ERISA) and the Age Discrimination in Employment Act
(ADEA). These allegations arise out of the conversion of the
Duke Energy Company Employees’ Retirement Plan into the
Duke Energy Retirement Cash Balance Plan. The case also raises
some Plan administration issues, alleging errors in the application of
Plan provisions (i.e., the calculation of interest rate credits in 1997
and 1998 and the calculation of lump-sum distributions). Six causes
of action were alleged, ranging from age discrimination, to various
alleged ERISA violations, to allegations of breach of fiduciary duty.
Plaintiffs sought a broad array of remedies, including a retroactive
reformation of the Duke Energy Retirement Cash Balance Plan and a
recalculation of participants’/ beneficiaries’ benefits under the revised
and reformed plan. Duke Energy filed its answer in March 2006. A
portion of this contingent liability was assigned to Spectra Energy
Corp (Spectra Energy) in connection with the spin-off in January
2007. A hearing on the plaintiffs’ motion to amend the complaint to
add an additional age discrimination claim, defendant’s motion to
dismiss and the respective motions for summary judgment was held
in December 2007. On June 2, 2008, the court issued its ruling
denying plaintiffs’ motion to add the additional claim and dismissing
a number of plaintiffs’ claims, including the claims for ERISA age
discrimination. Subsequently, plaintiffs notified Duke Energy that they
were withdrawing their ADEA claim. On September 4, 2009, the
court issued its order certifying classes for three of the remaining
claims but not certifying their claims as to plaintiffs’ fiduciary duty
claims. After mediation on September 21, 2010, the parties reached
an agreement in principle to settle the lawsuit, subject to execution of
a definitive settlement agreement, notice to the class members and
approval of the settlement by the Court. In the third quarter of 2010,
Duke Energy recorded a provision related to the settlement
agreement. At a hearing on May 16, 2011, the court issued its final
confirmation order and payments have been made in accordance
with the settlement agreement.
Crescent Litigation.
On September 3, 2010, the Crescent Resources Litigation Trust
filed suit against Duke Energy along with various affiliates and several
individuals, including current and former employees of Duke Energy,
in the U.S. Bankruptcy Court for the Western District of Texas. The
Crescent Resources Litigation Trust was established in May 2010
pursuant to the plan of reorganization approved in the Crescent
bankruptcy proceedings in the same court. The complaint alleges that
in 2006 the defendants caused Crescent to borrow approximately
$1.2 billion from a consortium of banks and immediately thereafter
distribute most of the loan proceeds to Crescent’s parent company
without benefit to Crescent. The complaint further alleges that
Crescent was rendered insolvent by the transactions, and that the
distribution is subject to recovery by the Crescent bankruptcy estate
as an alleged fraudulent transfer. The plaintiff requests return of the
funds as well as other statutory and equitable relief, punitive damages
and attorneys’ fees. Duke Energy and its affiliated defendants believe
that the referenced 2006 transactions were legitimate and did not
violate any state or federal law. Defendants filed a motion to dismiss
in December 2010. On March 21, 2011, the plaintiff filed a
response to the defendant’s motion to dismiss and a motion for leave
to file an amended complaint, which was granted. The Defendants
filed a second motion to dismiss in response to plaintiffs’ amended
complaint.
A hearing on the motion was held on August 31, 2011, and
the parties are awaiting a ruling. On December 14, 2011, the
Plaintiff filed a demand for jury trial and a motion to transfer the case
to the federal district court. Defendants responded by filing a motion
to strike Plaintiff’s jury demand, but consented to the transfer of the
case to the District Court. The court’s ruling on the jury demand and
motion to transfer is pending. No trial date has been set. It is not
possible to predict at this time whether Duke Energy will incur any
liability or to estimate the damages, if any, that Duke Energy might
incur in connection with this lawsuit.
On October 14, 2010, a suit was filed in Mecklenburg County,
North Carolina, by a group of Duke Energy shareholders alleging
breach of duty of loyalty and good faith by certain Duke Energy
directors who were directors at the time of the 2006 Crescent
transaction. On January 5, 2011, defendants filed a Notice of
Designation of this case for the North Carolina Business Court. On
July 22, 2011, the court granted the defendants’ motion to dismiss
the lawsuit and the plaintiffs did not appeal the ruling.
Progress Energy Merger Litigation.
Duke Energy and Diamond Acquisition Corporation, a wholly
owned subsidiary of Duke Energy have been named as defendants in
10 purported shareholder actions filed in North Carolina state court
and two cases filed in federal court in North Carolina. The actions,
which contain similar allegations, were brought by individual
shareholders against the following defendants: Progress Energy, Duke
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