CHICAGO — A federal judge won’t dismiss a class action from a group of shareholders accusing ComEd’s parent company Exelon of misleading investors by not disclosing a federal investigation into a bribery scheme that has implicated former Illinois House Speaker Michael Madigan.
In late 2019, attorneys filed lawsuits in Chicago federal court on behalf of potentially thousands of Exelon investors. The first class action, brought by named plaintiff Joshua Flynn, accused Exelon of violating federal securities laws by failing to tell investors of lobbying activities that “increased the risk of a criminal investigation into Exelon,” and asserted the lobbying made at least some of “ComEd’s revenues … in part the product of unlawful conduct and thus unsustainable.”
Flynn has since been replaced as lead plaintiff in the action by Local 295 IBT Employer Group Pension Trust Fund.
Jim Barz
| rgrdlaw.com
The federal investigation has focused on the activities of lobbyist Mike McClain, considered a confidant and close associate of Madigan, and ComEd’s alleged efforts to utilize influential Springfield insiders to secure beneficial legislation and preferential treatment from state government. Madigan has not been charged with any crimes.
However, some ComEd executives and top Madigan operatives have already pleaded guilty for their roles. The investigation led to Madigan resigning his House seat and his position as chairman of the Democratic Party of Illinois.
In an opinion issued April 21, Judge Virginia Kendall denied Exelon’s motion to have the complaint dismissed. Anne Pramaggiore, who abruptly resigned as Exelon Utilities CEO in October 2019, filed an individual motion to dismiss, while three other defendants — current Exelon CEO Christopher Crane, Chief Strategy Officer William Von Hoene Jr. and ComEd CEO Joseph Dominguez — filed a joint motion with the corporate entities. Kendall said the arguments were essentially identical: the lawsuit insufficiently alleged violation of a federal securities law.
Kendall detailed the statements attributed to each named defendant in the lawsuit, which included remarks made in Securities and Exchange Commission reports and on conference calls with third-party market analysts. Although the defendants admitted making some of the statements, Kendall wrote, they argued their corporate roles were limited, such as that Crane spoke only on behalf of Exelon and Dominguez only signed SEC filings on behalf of ComEd.
“Defendants’ proffered examples show plaintiff has clearly alleged which entity was engaging in what allegedly fraudulent behavior,” Kendall wrote. “Plaintiff is not bringing claims against Exelon only as the corporate parent of ComEd, but because Exelon also made allegedly false and misleading statements.”
Pramaggiore also acknowledged making statements the complaint attributed to her but disputed whether they, according to Kendall, were “false or misleading regarding the company’s lobbying activities, the benefits and revenues from favorable legislation, and the company’s risk factor.” That disagreement, Kendall continued, is a question of facts not suitable for a motion to dismiss.
She did, however, say allegations regarding Pramaggiore’s statements during an August 2019 conference call were insufficient to bring a claim under the 1995 Private Securities Litigation Reform Act because they lacked detail on how background remarks concerning ComEd’s Chicago franchise agreement were misleading.
Turning to the issue of whether the defendants were obligated to disclose information about the investigation, Kendall said not only did the plaintiffs adequately allege such a duty, but she again rejected defendants’ arguments the relevant statements weren’t inaccurate or misleading as sufficient for dismissal.
“Plaintiff thoroughly laid out why these statements were misleading due to the omission of the bribery scheme throughout the complaint,” Kendall wrote. “Plaintiff is not arguing defendants were required to accuse themselves of wrongdoing; plaintiff pleads throughout the complaint that defendants were making misleading statements and engaging in fraudulent behavior because they were aware of the bribery scheme but representing otherwise. The statements, in other words, were incorrect when they were made.”
Kendall likewise rejected arguments the complaint didn’t sufficiently allege the defendants state of mind during the alleged wrongdoing. She said the complaint adequately referenced “motive, including that the bribery scheme was worth millions of dollars to the company and each individual defendant stood to gain from the scheme.” She further said it alleges “individual defendants oversaw the lobbying activities, participated in fundraisers, had access to internal corporate documents and conversations with officers and employees, reviewed reports on the topics on which they spoke and made public statements as well as by signing public filings.”
Finally, Kendall refused to strike arguments from the plaintiffs' reply brief, finding new citations of case law were in response to the motion to dismiss and not improper attempts to bolster the initial arguments.
The shareholder plaintiffs are represented in the action by attorneys James E. Barz, Brian E. Cochran, Frank A. Richter and Gina Buschatzke, of the firm of Robbins Geller Rudman & Dowd, of Chicago; and Louis C. Ludwig, Jeremy A. Lieberman and others, with the firm of Pomerantz LLP, of Chicago.
Pramagiorre is represented by attorney David A. Gordon, of the firm of Sidley Austin LLP, of Chicago.
Exelon is represented by attorney Jaran R. Moten, and others with the firm of Kirkland & Ellis Llp, of Chicago.