City Of Birmingham Retirement And Relief System v. Good

177 A.3d 47 (2017)

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Nature of the Case

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Facts

Duke Energy's coal-fired power plants generate a by-product known as coal ash, which contains toxic and carcinogenic substances. The plants dispose of the coal ash through wastewater treatment centers composed of unlined ponds where contaminants sink to the bottom and less-contaminated water stays at the top, to be discharged into adjacent rivers. Under the Clean Water Act (CWA) 'the discharge of any pollutant by any person shall be unlawful,' unless granted a permit by the EPA or the applicable state regulatory body. If third parties wish to sue a company for violating the CWA, they must first file a notice of intent with the applicable regulatory bodies. If a notified regulator does not initiate enforcement within sixty days, the third party litigant may proceed with the suit. If the state or federal regulatory party files suit in 60 days the third parties can move to intervene in the litigation between the regulator and the defendant. A third party can regain standing if the regulator fails to 'diligently prosecute' the alleged violator once suit is filed. Ps filed a notice of intent to sue three of Duke Energy's subsidiaries under the CWA for coal ash seepages at ponds in North Carolina. The State filed an enforcement action, which preempted the suits. Duke Energy negotiated a consent decree that would require Duke Energy to pay a $99,000 fine and create a compliance schedule. Duke Energy was required to 'identify and characterize seeps' and conduct 'groundwater studies.' The consent decree was subject to a public comment period and court approval. The State withdrew from the proposed consent order when on February 2, 2014, a stormwater pipe ruptured beneath a coal ash containment pond at Duke Energy's facility in Eden, North Carolina, releasing twenty-seven million gallons of coal ash slurry and wastewater into the Dan River. Duke Energy had never inspected the pipe, although a Duke Energy station manager recommended the company pay $20,000 for camera inspections in both 2011 and 2012. Federal and state regulators found that had Duke Energy completed a camera inspection, it likely would have discovered the corroded pipe. D pled guilty to nine misdemeanor violations, paid $102 million in fines, and agreed to restitution, community service, and mitigation. None of the proceedings were criminal but were based on civil negligence. Duke paid a lot of money in fines and incurred additional costs to comply with environmental regulations newly enacted by North Carolina and that could result in the closure of coal ash ponds for an estimated cost of $4.5 billion. Ps filed derivative suits in the Court of Chancery, alleging that the directors breached their fiduciary duties because they knew of and disregarded CWA violations and allowed Duke Energy to collude with the State to evade compliance with environmental regulations. Ds moved to dismiss the complaint for failure to plead demand futility, claiming that the plaintiffs did not allege the particularized facts required by Court of Chancery Rule 23.1 to show that the directors faced a substantial likelihood of personal liability. The Chancery found that the facts and reasonable inferences did not show that the directors consciously disregarded environmental problems at the site or improperly colluded with regulators to avoid remediating environmental problems. The court dismissed the complaint under Court of Chancery Rule 23.1 for failure to make a demand on the board. Ps appealed.