Diane Owens v. FirstEnergy Corporation

Summarized by Jonathan Batiste , Rensselaer Polytechnic Institute
6 months 4 days ago

Case Type:

Business

Case Status:

Reversed and Remanded

Citation:

Nos. 23-3940 /3943 /3945 /3946 /3947 (6th Circuit, Aug 13,2025) Published

Tag(s):

Ruling:

The circuit court held that courts must follow a two-step analysis to determine which presumption of reliance, the Affiliated Ute presumption or the Basic presumption, is applicable in securities-fraud class actions alleging omissions, misrepresentations, and half-truths. First, courts must classify claims as alleging either omissions or misrepresentations. Second, they must employ a four-factor test to characterize the overall case as being primarily based on either omissions or misrepresentations. Cases are analyzed under the Basic presumption if any of the factors are satisfied.

Procedural context:

Defendant’s subsidiaries filed for bankruptcy; however, the case was halted at the request of the Department of Justice and other parties. A plaintiff filed her complaint against Defendant in the district court. The district court then consolidated the plaintiff’s case with other related class actions against Defendant. Defendant appealed the district court’s decision to consolidate the cases.

Facts:

The facts set forth are the allegations laid out in Plaintiffs’ consolidated complaint. FirstEnergy (“Defendant”) engaged in a corruption and bribery scheme between February 2017 and July 2020. In 2018, Defendant announced plans to decommission its nuclear power plants. The plan would entail billions of dollars in direct expenses and future environmental liabilities. Defendant’s subsidiaries then filed for bankruptcy in an attempt to shed the costs, but the Department of Justice, among other parties, objected to Defendant’s proposed settlement. Meanwhile, Defendant had begun ingratiating itself with Ohio’s former Speaker of the House, Larry Householder, via corporate jet flights to a presidential inauguration and $2.9 million in political contributions. Further, through proxy statements and shareholder meetings, Defendant misled shareholders about the nature of its political activity. Defendant paid around $60 million to Householder, to the former Chairman of the Public Utilities Commission of Ohio, and to other parties. The payments were made in exchange for the bailing out of its nuclear power plants via Ohio House Bill 6. The bill was signed into law in 2019 and delivered around $2 billion to Defendant. Public opposition to the bill arose with the launch of a referendum movement. Defendant schemed to defend the law via advertising campaigns and otherwise underhanded tactics, crushing the referendum effort. Defendant issued $5 billion worth of securities after that, taking advantage of artificially high stock prices and credit ratings. Despite Defendant’s efforts, the scheme was exposed when Householder and associates were arrested on federal charges in 2020. Defendant’s stock plunged once the scheme was exposed, losing over $10 billion in market capitalization. The major ratings agencies also downgraded Defendant’s credit ratings to junk status. Investors lost billions of dollars collectively. Plaintiffs alleged that Defendant filed documents with the SEC that contained untrue assertions of material fact and material omissions of fact. Plaintiffs further contend that the filings were not prepared in accordance with SEC rules and regulations. Plaintiffs claimed that they sustained damages as the values of Defendant’s new securities had declined because of the revelation of Defendant’s wrongful conduct. Plaintiffs allege that Defendant’s securities fell from artificially inflated highs, propped up by misstatements and material omissions. The appeal to the circuit court concerned Plaintiff’s claim that Defendant violated Exchange Act section 10(b) and SEC Rule 10b-5.

Judge(s):

Boggs, Clay, and Gibbons

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