Duke Energy 2015 Annual Report Download - page 154

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PART II
DUKE ENERGY CORPORATION • DUKE ENERGY CAROLINAS, LLC • PROGRESS ENERGY, INC. •
DUKE ENERGY PROGRESS, LLC • DUKE ENERGY FLORIDA, LLC • DUKE ENERGY OHIO, INC. • DUKE ENERGY INDIANA, INC.
Combined Notes to Consolidated Financial Statements – (Continued)
of NCDEQ. Based on historic practices the expected liability of any existing notice
of violations would not be material. Duke Energy Carolinas and Duke Energy
Progress cannot predict whether the NCDEQ will assess future penalties related
to existing NOVs and if such penalties would be material.
See the “Litigation” section below for additional information on litigation,
investigations and enforcement actions related to ash basins, including the
Memorandum of Plea Agreement (Plea Agreements) in connection to the North
Carolina Ash Basin Grand Jury Investigation and NCDEQ matters.
LITIGATION
Duke Energy
Ash Basin Shareholder Derivative Litigation
Five shareholder derivative lawsuits were filed in Delaware Chancery
Court relating to the release at Dan River and to the management of Duke
Energy’s ash basins. On October 31, 2014, the five lawsuits were consolidated
in a single proceeding titled “In Re Duke Energy Corporation Coal Ash
Derivative Litigation.” On December 2, 2014, plaintiffs filed a Corrected Verified
Consolidated Shareholder Derivative Complaint (Consolidated Complaint). The
Consolidated Complaint names as defendants several current and former Duke
Energy officers and directors (collectively, the “Duke Energy Defendants”). Duke
Energy is named as a nominal defendant.
The Consolidated Complaint alleges the Duke Energy Defendants breached
their fiduciary duties by failing to adequately oversee Duke Energy’s ash
basins and that these breaches of fiduciary duty may have contributed to the
incident at Dan River and continued thereafter. The lawsuit also asserts claims
against the Duke Energy Defendants for corporate waste (relating to the money
Duke Energy has spent and will spend as a result of the fines, penalties and
coal ash removal) and unjust enrichment (relating to the compensation and
director remuneration that was received despite these alleged breaches of
fiduciary duty). The lawsuit seeks both injunctive relief against Duke Energy and
restitution from the Duke Energy Defendants. On January 21, 2015, the Duke
Energy Defendants filed a Motion to Stay and an alternative Motion to Dismiss.
On August 31, 2015, the court issued an order staying the case through
November 15, 2015. A ruling on defendants’ motion to further extend the stay
remains pending.
On March 5, 2015, shareholder Judy Mesirov filed a shareholder
derivative complaint (Mesirov Complaint) in North Carolina state court. The
lawsuit, styled Mesirov v. Good, is similar to the consolidated derivative action
pending in Delaware Chancery Court and was filed against the same current
directors and former directors and officers as the Delaware litigation. Duke
Energy Corporation, Duke Energy Progress and Duke Energy Carolinas are named
as nominal defendants. The Mesirov Complaint alleges that the Duke Energy
Board of Directors was aware of Clean Water Act (CWA) compliance issues and
failures to maintain structures in ash basins, but that the Board of Directors
did not require Duke Energy Carolinas and Duke Energy Progress to take action
to remedy deficiencies. The Mesirov Complaint further alleges that the Board
of Directors sanctioned activities to avoid compliance with the law by allowing
improper influence of NCDEQ to minimize regulation and by opposing previously
anticipated citizen suit litigation. The Mesirov Complaint seeks corporate
governance reforms and damages relating to costs associated with the Dan
River release, remediation of ash basins that are out of compliance with the
CWA and defending and payment of fines, penalties and settlements relating to
criminal and civil investigations and lawsuits. On December 7, 2015, the Duke
Energy Defendants filed a Motion to Stay the proceedings. A hearing was held on
February 17, 2016, and a ruling on this motion is pending.
In addition to the above derivative complaints, in 2014, Duke Energy
also received two shareholder litigation demand letters. The letters allege that
the members of the Board of Directors and certain officers breached their
fiduciary duties by allowing the company to illegally dispose of and store coal
ash pollutants. One of the letters also alleges a breach of fiduciary duty in the
decision-making relating to the leadership changes following the close of the
Progress Energy merger in July 2012.
By letter dated September 4, 2015, attorneys for the shareholders were
informed that, on the recommendation of the Demand Review Committee
formed to consider such matters, the Board of Directors concluded not to pursue
potential claims against individuals. One of the shareholders, Mitchell Pinsly,
sent a formal demand for records and Duke Energy is responding to this request.
On October 30, 2015, shareholder Saul Bresalier filed a shareholder
derivative complaint in the U.S. District Court for the District of Delaware.
The lawsuit alleges that several current and former Duke Energy officers and
directors (Bresalier Defendants) breached their fiduciary duties in connection
with coal ash environmental issues, the post-merger change in Chief Executive
Officer and oversight of political contributions. Duke Energy is named as a
nominal defendant. The Bresalier Complaint contends that the Demand Review
Committee failed to appropriately consider the shareholder’s earlier demand
for litigation and improperly decided not to pursue claims against the Bresalier
Defendants. The Bresalier Defendants filed a Motion to Dismiss the Bresalier
litigation on January 15, 2016.
It is not possible to predict whether Duke Energy will incur any liability or
to estimate the damages, if any, it might incur in connection with these matters.
Progress Energy Merger Shareholder Litigation
Duke Energy, the 11 members of the Board of Directors who were also
members of the pre-merger Board of Directors (Legacy Duke Energy Directors)
and certain Duke Energy officers are defendants in a purported securities
class action lawsuit (Nieman v. Duke Energy Corporation, et al). This lawsuit
consolidates three lawsuits originally filed in July 2012 and is pending in the
United States District Court for the Western District of North Carolina. The
plaintiffs allege federal Securities Act of 1933 and Securities Exchange Act
of 1934 (Exchange Act) claims based on allegations of materially false and
misleading representations and omissions in the Registration Statement filed
on July 7, 2011, and purportedly incorporated into other documents, all in
connection with the post-merger change in Chief Executive Officer (CEO).
On August 15, 2014, the parties reached an agreement in principle
to settle the litigation. On March 10, 2015, the parties filed a Stipulation of
Settlement and a Motion for Preliminary Approval of the Settlement. The court
issued an order for preliminary approval of the settlement on March 25, 2015.
Under the terms of the agreement, Duke Energy agreed to pay $146 million to
settle the claim. On April 22, 2015, Duke Energy made a payment of $25 million
into the settlement escrow account. The remainder of $121 million was paid by
insurers into the settlement escrow account. Notice has been sent to members
of the class and a final approval hearing was held on August 12, 2015. The final
order approving the settlement was issued on November 2, 2015, thus closing
the matter.
On May 31, 2013, the Delaware Chancery Court consolidated four
shareholder derivative lawsuits filed in 2012. The Court also appointed a lead
plaintiff and counsel for plaintiffs and designated the case as In Re Duke Energy
Corporation Derivative Litigation. The lawsuit names as defendants the Legacy
Duke Energy Directors. Duke Energy is named as a nominal defendant. The case
alleges claims for breach of fiduciary duties of loyalty and care in connection
with the post-merger change in CEO. On December 10, 2015, the Duke Energy
defendants filed a Motion to Dismiss the litigation.