One of the largest corporate buyouts in South Carolina history was put to bed this month when Dominion Energy snapped up ailing utility owner SCANA Corp. after a yearlong courtship.
No one disputes that fact.
What is up for debate is whether the sale stripped SCANA shareholders of some of their legal muscle the instant the deal was consummated.
A court battle being waged by two aggrieved investors in the former Cayce-based utility hinges on that very question.
At issue is one of the key ground rules of the litigation trade. It's called "standing,” which UpCounsel.com defines as “the legal right to initiate a lawsuit. To do so, a person must be sufficiently affected by the matter at hand, and there must be a case or controversy that can be resolved by legal action.”
The matter at hand, in this instance, is the disastrous expansion of the V.C. Summer nuclear plant, which wiped out nearly $2.5 billion of shareholder wealth after SCANA chose to walk away from the unfinished project in July 2017.
A flurry of lawsuits followed the abandonment, including one that a SCANA shareholder from Pennsylvania filed in Columbia in November 2017.
The investor and another who was added later to the complaint aren’t suing as individuals who lost money on a cratering stock. Instead, they're looking to “stand in the shoes” of the company in what’s known as a “derivative” lawsuit, according to a legal filing.
Their main allegation is that certain key executives and the board, led by then-CEO and chairman Kevin Marsh, so badly bungled the V.C. Summer project that they damaged SCANA's reputation and finances while also rewarding themselves with raises and bonuses.
Among other demands, the shareholders are asking that all of the individual defendants pay unspecified restitution to the company.
But much has changed since the case hit the docket more than 14 months ago, namely the sale of SCANA to Richmond, Va-based Dominion in a stock swap valued at $6.8 billion.
The deal raised an existential question — and potentially a crisis — after it was finalized on Jan 1. Lawyers for SCANA management were quick to point out that the litigants ceased to be stockholders in the South Carolina Electric & Gas parent from that point forward. They have since asked that the lawsuit be tossed on that basis.
“Under both the federal rules of civil procedure and South Carolina law a shareholder has no standing to sue derivatively on behalf of a corporation unless he or she continuously owns shares in that corporation starting from the time of the alleged wrongdoing through the completion of the litigation,” they wrote in a Jan. 7 memorandum.
The defense team cited a previous state Supreme Court decision and a similar shareholder case involving the sale of another South Carolina company.
That dispute flared up after General Dynamics acquired Force Protection Inc. in 2011. A judge later ruled that former investors in the Ladson-based armor vehicle maker who felt the $360 million sale price was too low couldn't pursue legal action based on the “continuous ownership rule.”
Whether the SCANA complaint plays out the same way remains to be seen. The two investors aren't convinced that their loss of status as stockholders will result in their loss of legal standing.
Both sides were able to come to terms on at least one key point — that the court needs to deal with the issue before they invest time, money and resources deposing witnesses and preparing for a possible trial.
The judge agreed, putting the lawsuit on ice until it can determined exactly where the case stands.