Int'l Bhd. of Elec. Workers Local 98 Pension Fund v. Deloitte & Touche, LLP

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International Brotherhood of Electrical Workers Local 98 Pension Fund, on behalf of itself and all others similarly situated, Plaintiff, v. Deloitte & Touche, LLP and Deloitte LLP, Defendants.

C. A. No. 3:19-3304-DCC

United States District Court, D. South Carolina, Columbia Division

August 7, 2023

ORDER AND OPINION

Donald C. Coggins, Jr. United States District Judge

In 2007, SCANA Corporation (“SCANA”) received legislative approval to construct two nuclear reactors at the V.C. Summer Nuclear Generating Station in Fairfield County South Carolina (the “Project”). SCANA and its partner, South Carolina Public Service Authority, spent approximately $9 billion on the Project, which ultimately was abandoned. SCANA was exposed to civil and criminal liabilities, as were its officers and directors. On November 22, 2019, Samuel R. Floyd, III, on behalf of himself and all others similarly situated, brought this class action securities complaint against Defendants Deloitte &amp Touche, LLP and Deloitte LLP (together “Deloitte”), which have served as SCANA's auditors since 1945. The complaint alleged Deloitte was aware the Project was failing, but continued to issue unqualified “clean” audit reports on SCANA's financial statements, to the detriment of SCANA investors. ECF No 1.^[1]

On January 24, 2020, Plaintiff International Brotherhood of Electrical Workers Local 98 Pension Fund (“IBEW Local 98”) filed a motion pursuant to Section 21D(a)(3) of the Securities Exchange Act of 1934 (the “Exchange Act”), 15 U.S.C. § 78u-4(a)(3)(B), as amended by the Private Securities Litigation Reform Act of 1995 (the “PSLRA”), for an order appointing IBEW Local 98 as Lead Plaintiff, on behalf of itself and all others situated, on the grounds it was the investor with the largest financial interest in the case. IBEW Local 98 further asserted its motion was timely, as the motion was filed within sixty days of the date of the notice published pursuant to the PSLRA, and that IBEW Local 98 satisfied the typicality and adequacy requirements of Fed.R.Civ.P. 23. IBEW Local 98 also moved for approval of Cohen Milstein as Lead Counsel and Tinkler Law as Liaison Counsel. ECF No. 22. The motion was granted on February 18, 2020. ECF No. 37. IBEW Local 98 filed a consolidated complaint on May 19, 2020, in which it asserts a cause of action for violation of Section 10(b) of the Exchange Act and Rule 10b-5. ECF No. 44.

A number of disputes arose between Mr. Floyd and IBEW Local 98, including whether Mr. Floyd retained his status as class representative, whether Mr. Floyd's counsel were entitled to continue as class counsel, and whether Brian Burrows, President of IBEW Local 98, was an appropriate person to make legal decisions on behalf of the Fund, as he attested to in the amended complaint. See ECF No. 44-1 (Updated Certification Pursuant to Federal Securities Laws). Deloitte moved for a status conference, ECF No. 77, which was held on June 10, 2021. During the hearing, the court queried Lead Counsel regarding information Mr. Burrows had been named in a 116-count indictment charging multiple union employees, including Mr. Burrows, of conspiring to embezzle union assets. Lead Counsel took the position the information regarding the indictment was not relevant to whether IBEW Local 98 was a suitable entity to serve as Lead Plaintiff. Lead Counsel explained the union and pension fund were two separate legal entities with different leadership and different structures, and the indictment dealt with allegations regarding the union, and not the pension fund. ECF No. 83 at 10-11 (Transcript of June 10, 2021 hearing). Counsel stated to the court that oversight of the litigation was being exclusively handled by IBEW Local 98's in-house counsel; Mr. Burrows had no role in overseeing the litigation; and IBEW Local 98 was governed by a board of independent trustees of which Mr. Burrows was only one. Lead Counsel further stated courts regularly certify class representatives who have pending criminal charges as well as criminal convictions. Id. at 14-15.

Mr. Floyd's counsel pointed out Mr. Burrows' certification indicated he was authorized to make legal decisions on behalf of IBEW Local 98. Mr. Floyd's counsel further posited Mr. Burrows would not participate in a deposition or participate in discovery while the indictment was pending. Eventually, the court, concerned that Mr. Burrows' indictment could be used to challenge class certification, encouraged the parties to identify a suitable individual to make decisions on behalf of the class. Id. at 57-60. Consequently, on July 2, 2021, IBEW Local 98 filed a Declaration of Todd Neilson in Support of Supplemental Motion for Class Certification, Appointment of Class Representative, and Appointment of Class Counsel. ECF No. 86-1. Mr. Neilson's declaration stated IBEW Local 98 is a Taft-Hartley defined-benefit plan governed by the Employee Retirement Income Security Act (“ERISA”) and subject to the jurisdiction of the Department of Labor. ECF No. 96-1 at 2. The declaration further stated IBEW Local 98 is administered by a Board of Trustees comprised of four management representatives and four employee representatives, although at the time one employee seat was empty. Id. The declaration explained the criminal indictment and a civil matter brought by the Department of Labor involved union activities and IBEW Local 98 was not related to either the indictment or civil matter. The declaration further provided as follows:

12. As required by the Private Securities Litigation Reform Act and its fiduciary duties to the putative class in the above-captioned matter, the Local 98 Pension Fund has actively overseen this litigation and counsel. Local 98 Pension Fund is very proud of the success to Dated: drafting a comprehensive complaint in a complex matter, wholly prevailing on motion to dismiss, filing a compelling class certification motion, and commencing discovery. Local 98 Pension Fund looks forward to continued vigorous litigation on behalf of the putative class and, hopefully soon, a certified class.

13. In deference to the Court's concerns and to ensure that the case can continue proceeding smoothly with a minimum of distractions, the sole authority to make all decisions with regard to this action on behalf of the Local 98 Pension Fund has been delegated to me. Mr. Burrows will have no role in overseeing this litigation, its resolution or distribution of any settlement proceeds or judgment, if any. I have prepared a new certification, attached hereto as Exhibit A.

ECF No. 86-1 at 3-4.

Mr. Neilson averred in the certification, among other things, that he was the sole individual authorized to make legal decisions on behalf of IBEW Local 98 with regard to this action; IBEW Local 98 has full power and authority to bring suit to recover for its investment losses; IBEW Local 98 has fully reviewed the facts and allegations of the Consolidated Complaint filed in this action; and IBEW Local 98 intends to actively monitor and vigorously pursue this action for the benefit of the Class. ECF No. 86-1 at 6.

On July 14, 2021, the court issued an order reaffirming its finding IBEW Local 98 satisfied the requirements for Lead Plaintiff under Section 21D(a)(3)(B) of the Exchange Act and that no proof had been adduced showing IBEW Local 98 would not fairly and adequately represent the interests of the putative class. The court further directed the Clerk's Office to substitute IBEW Local 98 for Mr. Floyd in the caption of the case, and to remove Mr. Floyd as a named party. ECF No. 88. The order further directed Mr. Floyd's counsel be identified as additional counsel to the proposed class to work under the direction of Lead Counsel. ECF No. 88.

Currently before the court is the motion to dismiss for lack of jurisdiction filed by Deloitte on May 26, 2022. ECF No. 132. IBEW Local 98 filed a response in opposition on June 16, 2022. ECF No. 141. Deloitte filed a reply on June 28, 2022. ECF No. 142. According to Deloitte, IBEW Local 98 lacks standing because it has never been authorized by the Board of Trustees to participate in this action as Lead Plaintiff. In response, IBEW Local 98 contends Deloitte has misinterpreted the terms of IBEW Local 98's Trust Agreement and the deposition testimony of IBEW Local 98's representatives, and the actions of Mr. Burrows and Mr. Neilson were proper.

The court held a hearing on March 16, 2023. The parties filed supplemental information both before and after the hearing. As briefly recited above, the court has reviewed the docket, arguments of counsel, and relevant case law. For the reasons stated below, the court finds and concludes the motion to dismiss should be denied.

I. APPLICABLE LAW

Deloitte brings this motion pursuant to Fed.R.Civ.P. 12(b)(1). When a Rule 12(b)(1) motion challenge is raised to the factual basis for subject matter jurisdiction, the burden of proving subject matter jurisdiction is on the plaintiff. Richmond, Fredericksburg & Potomac R. Co. v. United States, 945 F.2d 765, 768 (4th Cir. 1991) (citing Adams v. Bain, 697 F.2d 1213, 1219 (4th Cir.1982)). In determining whether jurisdiction exists, the district court is to regard the pleadings' allegations as mere evidence on the issue, and may consider evidence outside the pleadings without converting the proceeding to one for summary judgment. Id. (citing Adams, 697 F.2d at 1219; Trentacosta v. Frontier Pac. Aircraft Indus., 813 F.2d 1553, 1558 (9th Cir.1987)). The district court should apply the standard applicable to a motion for summary judgment, under which the nonmoving party must set forth specific facts beyond the pleadings to show that a genuine issue of material fact exists. Id. (citing Trentacosta, 813 F.2d at 1559). The moving party should...