New Twist in Electricity Co-op’s Troubles

MARIETTA, Ga. (CN) - After a 31-count criminal indictment against its CEO in January, Cobb Electric Membership Corp. is flexing its own legal muscle at six members who filed a derivative lawsuit against it. Cobb EMC claims the six people and one of their attorneys breached the 2008 settlement agreement by "instigating" the criminal investigation of CEO Dwight Brown that led to his indictment.

In the original 2007 case, co-op members accused Cobb EMC and its directors and officers of breach of fiduciary duty, abuse of control, gross mismanagement, waste of corporate assets and unjust enrichment, in creating and running a for-profit subsidiary, Cobb Energy Management Corporation (Cobb Energy).

Through Cobb Energy, the plaintiffs said, Dwight Brown and other officers misappropriated the assets and business opportunities that belonged to Cobb EMC. They also complained that, Cobb Energy, a subsidiary, never paid a dividend to Cobb EMC but paid dividends to Cobb EMC officers.

When the case was settled in 2008, the members agreed to relinquish all claims, and that upon final order and judgment, the settlement would "forever bar the prosecution, by Cobb EMC, or derivatively on behalf of Cobb EMC, of any duplicative included or related claims."

Cobb EMC paid more than $3.5 million in attorney's fees and expenses for the settling members. But after the members signed an agreement that Cobb EMC had "fully satisfied" the final order and judgment, the co-op says in its new complaint that the members - with assistance from their attorney David Cohen with Carr & Palmer LLP - breached the settlement agreement by meeting with the Cobb County District Attorney's Office about the criminal allegations.

Based on those meetings, Cobb EMC says, the district attorney issued a search warrant on Cobb EMC and several officers and directors, including CEO Brown. It claims that "unknown persons alerted the press before the execution of the warrants ... local media outlets widely disseminated images of Georgia Bureau of Investigation agents leaving the offices of Cobb EMC ... and subpoenaed hundreds of thousands of documents" for the investigation, forcing the co-op to hire its own lawyers and accountants for the investigation.

Cobb EMC sued Edgar "Bo" Pounds individually and on behalf of the estate of Mary Jean Pounds, Joseph Thompson, Franklin Smith, Eagle Eye Forensics, Dianne Brackin, William Sharp, and David M. Cohen.

It seeks punitive damages and costs for breach of contract. It is represented by Dwight Davis with King & Spalding, in Cobb County Superior Court.

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