A federal judge has denied Exelon’s attempt to have an appeals panel address key legal questions about an investor class action accusing ComEd’s parent company of misleading investors by not disclosing a federal investigation into a bribery scheme that has implicated former Illinois House Speaker Michael Madigan.
The suit originated in late 2019 when 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.”
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 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 April, Judge Virginia Kendall denied Exelon’s motion to have the complaint dismissed, although she did dismiss individual defendant Anne Pramaggiore, who abruptly resigned as Exelon Utilities CEO in October 2019, after finding 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.
Exelon sought an interlocutory appeal of the dismissal - an appeal that asks a higher court to review whether a judge had correctly answered a key legal question - asking the U.S. Seventh Circuit Court of Appeals to rule on whether the shareholders had a right to private action under the federal law on which they based their securities and exchange allegations. They also sought to ask whether Exelon was compelled to disclose regulatory noncompliance in its filings with the Securities and Exchange Commission.
According to Kendall, who ruled on the motion in an opinion issued Jan. 28, neither side disagreed with whether the private right of action query constitutes a controlling question of law. But the plaintiffs challenged the duty to disclose dispute, asserting it is a factual, not legal, question. They also said the first question doesn’t meet the contestable standard that would permit an interlocutory appeal.
On that point, Kendall sided with the plaintiffs, saying Exelon didn’t meet the “heavy burden” of suggesting her dismissal would be reversed on appeal by showing the Seventh Circuit hasn’t issued a controlling opinion. Although “they correctly note that there is currently a circuit split on the matter,” Kendall wrote, the plaintiffs pointed to a 2019 decision in the Northern District of Illinois, Shah v. Zimmer Biomet Holdings, in which a judge denied an interlocutory appeal because the question wasn’t “particularly contestable.”
Although Exelon argued the Zimmer opinion relied on an incorrect standard and suggested “the Seventh Circuit would ‘likely’ adopt what the Zimmer court itself deemed to be the ‘more persuasive’ side of a circuit split,” Kendall disagreed.
Although there is a circuit split, Kendall wrote, that alone doesn’t make the question contestable. Nor did Exelon show a “substantial likelihood” her ruling would be reversed on appeal.
Kendall also said certifying an interlocutory appeal is only proper if doing so would accelerate the litigation. Exelon said it hoped to resolve issues potentially streamlining class certification, but the plaintiffs argued that if an appeals panel resolved the questions in Exelon’s favor it would make it harder for them to obtain certification. Kendall said Exelon failed to prove its expedience argument.
“This case is already proceeding towards discovery and there is no argument that resolving the two questions presented for interlocutory appeal would bear upon the remaining issues of the case,” Kendall wrote. “Indeed, the risk appears much greater that granting the interlocutory appeal would protract the litigation.”
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.