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Talen Montana Retirement Plan v. PPL Corp.

United States District Court, D. Montana, Billings Division

September 13, 2019

Talen Montana Retirement Plan and Talen Energy Marketing, LLC, Individually and on Behalf of All Others Similarly Situated, Plaintiffs,
v.
PPL Corporation, PPL Capital Funding Inc., PPL Electric Utilities Corp., PPL Energy Funding Corp., Paul A. Fair, Mark F. Wilten, Peter J. Simonich, and DOES 1-50, Defendants.

          OPINION AND ORDER

          SUSAN P. WATTERS UNITED STATES DISTRICT JUDGE

         Before the Court is a motion to remand the case to state court filed by Plaintiffs Talen Montana Retirement Plan and Talen Energy Marketing, LLC, individually and on behalf of others similarly situated. (Doc. 18). For the following reasons, the motion is granted.

         I. Background According to the First Amended Complaint

         In 1999, PPL Corporation (PPL) purchased 11 hydroelectric facilities, a storage dam, and ownership interests in coal-fired plants in Colstrip, Montana, and Corette, Montana, from Montana Power Company for $769 million. (Doc. 17, ¶¶ 23-24). PPL created PPL Montana, a subsidiary, to acquire and manage the energy assets. (Doc. 17, ¶ 1).

         For the next thirteen years, PPL Montana generated more than $325 million in profits for PPL. (Doc. 17, ¶ 25). In 2012, due to a number of converging factors, energy prices dropped in Montana, causing PPL's profits to fall. (Doc. 17, ¶ 28). Although its hydroelectric assets were projected to continue to generate profits, its coal-fired plants in Colstrip and Corette were projected to have negative returns due to long-term contracts with coal suppliers in the midst of energy prices dropping. (Doc. 17, ¶ 28). In addition to the drop in energy prices, the coal plants were subject to new regulation from federal and state governments, and increased pressure from environmental activism. (Doc. 17, ¶¶ 29-33). The United States Environmental Protection Agency was formulating new regulations related to disposal of coal ash, which would result in higher production costs. (Doc. 17, ¶ 29). The Montana Department of Environmental Quality imposed extensive closure, remediation, and financial obligations on PPL Montana due to seepage from the coal plants' ash ponds. (Doc. 17, ¶ 31). The Sierra Club sued PPL Montana under the Clean Air Act for civil penalties and injunctive relief concerning the Colstrip coal plant. (Doc. 17, ¶ 32).

         While issues with the coal plants were going on, PPL acquired utilities in Kentucky and the United Kingdom for a combined cost of $13.2 billion. (Doc. 17, ¶ 34). PPL also designed plans to modernize existing utility operations for more than $15 billion. (Doc. 17, ¶ 34). The combined effect of PPL's declining energy profits and utility acquisitions was financial stress. (Doc. 17, ¶ 35). To ease the financial stress, PPL began shopping PPL Montana's assets. (Doc. 17, ¶ 37). Northwestern Energy submitted two bids. One bid was $740 million for PPL Montana's hydroelectric assets, the other bid was $400 million for PPL Montana's hydroelectric and coal-fired assets. (Doc. 17, ¶ 37). The coal-fired assets carried such a substantial negative valuation that PPL decided to sell PPL Montana's hydroelectric assets, distribute the proceeds to PPL, and leave the coal fired assets with PPL Montana. (Doc. 17, ¶ 37).

         At the time of the sale, all three of PPL Montana's board of managers were employed by PPL. (Doc. 17, ¶ 38). One of these managers was Peter Simonich. Simonich had worked in the energy business for nearly 34 years, including serving as the highest ranking officer for PPL Montana and the executive of the Colstrip coal-fired plant. (Doc. 17, ¶ 38). Simonich and PPL Montana's other two managers approved PPL Montana's sale of its hydroelectric assets to Northwestern for approximately $900 million. (Doc. 17, ¶ 39). Simonich's approval was necessary for the sale. (Doc. 17, ¶ 39).

         As soon as the sale was complete, Simonich and his fellow managers on the board authorized the distribution of the $900 million from PPL Montana to PPL despite knowing the distribution would leave PPL Montana insolvent. (Doc. 17, ¶¶ 39-40). Simonich's approval of the distribution to PPL was necessary for the distribution to occur. (Doc. 17, ¶ 40).

         The distribution left PPL Montana insolvent-just as Simonich, his fellow managers, and PPL knew it would-with only the coal-fired plants its material assets. The Colstrip plant had a fair market value of just $5 million, and the Corette plant was set to close because it was no longer economically viable. (Doc. 17, ¶¶ 33, 43). PPL Montana's liabilities vastly outweighed its assets. PPL Montana's cost to comply with the EPA's new coal ash disposal rule was estimated at $198 million. (Doc. 17, ¶ 45). The Montana Department of Environmental Quality charged PPL Montana with an estimated $500 million remediation cost to clean up the Colstrip plant's coal ash ponds. (Doc. 17, ¶ 45). Hundreds of current employees and retirees held a defined benefit pension plan which became underfunded. (Doc. 17, ¶¶ 5, 10). The vast majority of the current employees and retirees are Montana citizens, and almost three hundred of them are residents of a single county in Montana. (Doc. 40 at 64-71).

         Less than a year after rendering PPL Montana insolvent, PPL completed a spin-off transaction, wherein PPL Montana became a subsidiary of a new company completely unaffiliated with PPL, called Talen Energy Corporation, which subsequently changed its name to Talen Montana. (Doc. 17, ¶ 7).

         Talen Montana's pension plan and Talen Energy Marketing LLC, an affiliate of Talen Montana, filed suit against PPL in Montana state district court, alleging actual fraudulent transfer, constructive fraudulent transfer, recovery against subsequent transferees, civil conspiracy, concert of action, unjust enrichment, constructive trust, and punitive damages. (Doc. 17, ¶ 9). The Plaintiffs brought the suit as a class action on behalf of all current and contingent creditors of Talen Montana. (Doc. 17, ¶ 52). The first amended complaint seeks a constructive trust, damages equal to the distribution, and punitive damages. (Doc. 17 at 35). PPL removed the action to this Court under the Class Action Fairness Act, 28 U.S.C. §§ 1332, 1453. (Doc. 1). The Plaintiffs filed a motion to remand the case back to state court under the local controversy exception to CAFA. (Doc. 18).

         II. CAFA

         CAFA was enacted to curb perceived abuses in class action litigation, wherein plaintiffs' lawyers would name a non-diverse defendant to defeat diversity jurisdiction and thereby litigate otherwise national interest class actions locally in state court. S. Rep. 109-14 at 4-5. To end the practice, CAFA amended the requirements for diversity jurisdiction in class actions by granting district courts original jurisdiction over class actions exceeding $5, 000, 000 in controversy where at least one plaintiff is diverse from at least one defendant. Luther v. Countrywide Home Loans Servicing LP, 533 F.3d 1031, 1033-1034 (9th Cir. 2008). In essence, for class actions, Congress replaced federal court's usual jurisdictional requirement of complete diversity with minimal diversity. Mondragon v. Capital One Auto Finance, 736 F.3d 880, 882 (9th Cir. 2013). Congress recognized, however, that in certain instances, minimal diversity would cause the opposite of CAFA's intended effect; truly local class actions that have little to no national interest would be forced into federal court when state court would be the more appropriate forum. S. Rep. 109-14 at 38. To address the concern, Congress inserted several exceptions into CAFA which require or permit a federal court to remand a case back to state court. One of the exceptions is the aptly named Local Controversy Exception. The Local Controversy Exceptions removes federal diversity jurisdiction:

(A)(i) over a class action in which-
(I) greater than two-thirds of the members of all proposed plaintiff classes in the aggregate are citizens of the State in which the action was originally filed;
(II) at least one defendant is a defendant-
(aa) from whom significant relief is sought by members of the ...

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