Duke Energy has brought in two highly regarded trial lawyers as the N.C. Utilities Commission hears testimony Thursday from former Progress Energy CEO Bill Johnson about his post-merger resignation.
Charlotte lawyer Jim Cooney and former N.C. Supreme Court Chief Justice Burley Mitchell gave notice to the commission on Tuesday that they will appear for Duke. A third high-profile lawyer, Raleigh’s Wade Smith, already represents Johnson.
Their presence signals the growing stakes in the Duke merger, which is being investigated by both the Utilities Commission and Attorney General Roy Cooper. The commission could also bring in its own hired experts at Duke’s expense.
Filings Tuesday by Cooney and Mitchell also began Duke’s polite push-back to the Utilities Commission’s demands.
Duke said two directors the commission has called, lead director Ann Maynard Gray and longtime director Michael Browning, will voluntarily testify but asked for a delay.
The company objected to the eight-day notice the commission gave the directors and argued that subpoena power doesn’t extend to witnesses who live outside North Carolina – Gray in Connecticut and Browning in Indiana. Duke said neither director was served with the commission’s order for them to appear.
The commission slapped those arguments down Wednesday, refusing to delay Friday’s hearing.
“The commission and parties have had ample time to develop the facts and issues,” the denial order said. “In addition, (Duke CEO Jim) Rogers’ testimony on July 10 focused heavily on the actions of Duke’s board members. Thus, Gray and Browning knew that the commission was likely to call them as witnesses.”
Duke said the directors will appear Friday, but noted in a statement that “deferring the proceedings as we had suggested would ensure that the commission engages in the fair and orderly process contemplated by North Carolina law.”
Johnson was forced to resign hours after the merger closed July 2, despite assurances for more than a year that he would lead the new Duke. He and two former Progress directors will testify Thursday.
Robert Gruber, executive director of the commission’s Public Staff, said the high-powered lawyers show the growing significance of the case.
“It seems to me that if they want to draw this out indefinitely, (Duke) is playing a game of chicken with the commission,” Gruber said.
Duke had little to say about hiring Cooney and Mitchell. “It’s not unusual to bring in outside counsel to assist our legal team,” said spokesman Tom Williams.
Cooney, who declined to comment on the case, is the rare trial lawyer who succeeds at both civil and criminal law.
He’s represented death-row inmates, winning exoneration for one and reversal of murder convictions for another. He successfully defended one of the Duke University lacrosse players falsely accused of rape in 2006 in Durham. Cooney also handles health care litigation and white-collar criminal law.
Mitchell, based in Raleigh, was a 17-year N.C. Supreme Court justice, spent four years as chief justice, and was a former state secretary of Crime Control and Public Safety. He’s known as a top commercial litigator. He and Cooney practice at the large firm of Womble Carlyle Sandridge & Rice.
Duty to disclose?
Whether Duke had a duty to disclose its plans to oust Johnson after the merger depends partially on when the board made those plans, securities law experts say.
Rogers has testified that the board didn’t formally reach its decision until the day of the merger, July 2, when the newly combined board voted 10-5 to ask Johnson to leave. Since no formal decision was made before then, Rogers said, Duke could not have informed regulators.
“All of the information is material,” said Alan Palmiter, a business law professor at Wake Forest University. “I as a Duke shareholder might very much have wanted to know about the CEO.”
But, he said, the Duke board wasn’t legally obligated, under federal securities law, to disclose that it was considering voting to get rid of Johnson before the formal vote.
Tom Hazen, a law professor at UNC Chapel Hill, said the question of disclosure hinges on when the decision to reinstate Rogers was made.
“If they made this decision after the merger vote rather than it being an early-on position, then at least under securities laws, I can see the argument they did not have to disclose it,” Hazen said. “If, on the other hand, it was a plan all along, then they couldn’t keep that quiet.”
That would mean the board made materially misleading statements during the run-up to the merger, Hazen said.
Duke officials have said they made the decision on Johnson late in the merger proceedings.
Gray, Duke’s lead director, said the Duke board decided May 30 to close the merger and then act immediately on Johnson. Rogers testified he was first asked by Duke board members if he would step back in as CEO in late June.
Duke law professor Jim Cox said the timing of the case, especially the long lag between shareholder approval and regulatory approval, makes the Duke-Progress situation hard to judge.
“Normally, what we would say is they had a disclosure duty that went right up until the deal was closed,” he said.
But with a “gestation period” of a year and a half, during which the boards of directors learned more about each other while seeking regulatory approval, that might not apply, he said. The Duke board’s discussions might not rise to the level of requiring disclosure.
Another factor is whether the decision to push Johnson out is really material to the merger’s success, Cox said.
“Everyone expects one of those people is going to leave ultimately, in 18 months or two years,” he said. “That’s basically what happened here. … Everyone should have been anticipating that at some point, Rogers or Johnson would survive. Not both of them.”
