Cobb EMC case generates millions in legal fees

The co-op’s most recent annual report listed more than $10 million in litigation expenses in the two years between April 2008 and April 2010. Cobb EMC’s total expenses in its 2010 fiscal year were $621 million, with a net profit of $43 million.

Cobb EMC’s troubles stem from questions, first raised by The Atlanta Journal-Constitution in 2007, about the relationship between Cobb EMC and a for-profit side company called Cobb Energy, which operated the co-op for a mark-up under a 40-year contract. Customers sued later that year, saying the arrangement siphoned co-op assets and financially benefited insiders including Brown.

The $10 million figure for litigation expense doesn’t include spending during the first seven months of that lawsuit, or during much of continued haggling after that lawsuit was settled.

It also doesn’t include the co-op’s appeal of a finding that it had violated the settlement’s terms; the cost of defending Brown against a racketeering and theft indictment; or the cost of asking a court to allow the co-op to rehire Brown, despite settlement terms that required him to leave in February.

Cobb Alliance for Smart Energy leader Tom Barksdale, who is leading a petition drive to oust the co-op’s board, called it “outrageous” that customers who “faced years of misguided business judgement by co-op leaders . . . now have to pay their legal bills.”

“Why don’t they all resign, admit they were wrong and be gone?”

The co-op, through the Cookerly Public Relations firm, said it has no comment on the size of its legal bills, on how much of them had been paid by its insurer or on whether Brown’s criminal defense is also covered by the co-op’s insurance.

Attorney Pitts Carr, who represented the original suing customers, said the utility should disclose that information.

“The co-op members have an absolute right to know what has been charged, by whom and for what and whether insurance paid for it or not,” Carr said. He also said the co-op could have avoided most of its litigation costs by agreeing initially to end the 40-year operating contract.

He said the suing customers clearly laid out the issues with that contract to the co-op board before filing suit, but “were told to pound sand.” The lawsuit settlement unwound the contract and folded Cobb Energy back into Cobb EMC.

Most of the legal wrangling since the customer suit was settled has been about co-op board elections. A court agreed with plaintiffs last spring that the co-op violated the settlement terms after plaintiffs complained the EMC was trying to entrench the current board and management. A Georgia Supreme Court ruling is pending.

In a separate legal tangle, a Cobb County grand jury indicted Brown on 31 counts of theft and racketeering in January, based on claims similar to those in the lawsuit. The indictment was thrown out on a technicality last month, but prosecutors are appealing.

The co-op also sued its insurer, Zurich American, after the insurer didn’t pay what it deemed excessive billings in the civil case. At one point in that case, a Zurich attorney told a judge that Cobb EMC had retained more than 20 different law firms. The Zurich lawsuit was voluntarily dismissed in May.

One of the firms Cobb EMC used in the case, Atlanta powerhouse King & Spalding, billed $1.2 million in the five months after the lawsuit was settled. Brown’s criminal attorneys, who include former Georgia Gov. Roy Barnes, billed Cobb EMC $230,000 in the seven weeks after Brown was served with a search warrant in 2009.