Dynegy Inc.’s 2011 restructuring provoked the ire of a bankruptcy examiner, but it hasn’t proven fertile ground for a securities class action spearheaded by Levi & Korsinsky.
In a lengthy ruling on Wednesday, U.S. District Judge John Koeltl in Manhattan dismissed claims that Dynegy officials misled shareholders by not disclosing earlier that the power company was insolvent and by not stating that the purpose of various transactions was to shield assets from creditors. Koeltl ruled that Dynegy’s disclosures about the transactions were “robust,” and that there’s no evidence of an intent to mislead shareholders. (Hat tip to Brune & Richard’s S.D.N.Y. Blog, which first reported the ruling on Thursday.)
The decision is a win for five Dynegy executives, including CEO Robert Flexon, who were represented by a White & Case team led by Glenn Kurtz. It’s also a victory for famed corporate raider Carl Icahn, whom Levi & Korsinsky had tried to rope into the case on a theory that his large stake in Dynegy meant that he controlled the company’s board’s decisions. Icahn was represented by longtime lawyer Robert Viducich, a Manhattan solo practitioner.
In a March 2012 report, a court-appointed bankruptcy examiner wrote that Dynegy had engaged in fraudulent transfers between units in order to protect coal assets from creditors. The examiner’s report sent Dynegy’s stock price into a spiral, and the plaintiffs firm Faruqi & Faruqi immediately brought suit on behalf of Dynegy shareholders. After beating out Faruqi & Faruqi for lead counsel status, Levi & Korsinsky alleged in an amended complaint that the Dynegy officials painted an overly rosy picture of the transfers by not explicitly saying the company is insolvent and by not stating that the transfers were fraudulent.
Those claims didn’t fly with Koeltl, who dismissed the case on multiple grounds. For one thing, he wrote that the defendants had no duty to use the word “insolvent” to describe the company’s financial condition, since “Dynegy supplied investors with financial information from which investors could draw their own conclusions.” The judge also noted that there was no duty to disclose that financial transactions were motivated by a desire to hinder creditors, since the Dynegy officials “had no obligation to accuse themselves of wrongdoing.”