FirstEnergy Corp. et al v. Pircio Document 43

Ohio Northern District Court
Case No. 1:20-cv-01966
Filed April 23, 2021

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UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF OHIO
EASTERN DIVISION
FIRSTENERGY CORP., et al.,
Plaintiffs and
Counterclaim Defendants,
v.
MICHAEL PIRCIO,
Defendant and
Counterclaim Plaintiff.
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Case No. 1:20-cv-Judge J. Philip Calabrese
Magistrate Judge
Jonathan D. Greenberg
OPINION AND ORDER
In the course of pursuing their claims against Michael Pircio, Plaintiffs
FirstEnergy Corp. and Clearsulting LLC publicly filed two documents on the Court’s
docket, one of which had the effect of identifying Mr. Pircio as a whistleblower. In an
Order to Show Cause, the Court requested that Plaintiffs explain how the filing of
those documents complies with Rule 11(b)(1) and (3) and what proper purpose those
filings served.
In response, Plaintiffs and Mr. Pircio provided supplemental
information to the Court. Based on the record as a whole, the Court makes the
following findings of fact and conclusions of law.
GOVERNING LEGAL STANDARDS
Rule 11 imposes an obligation that every “pleading, written motion, or other
paper” submitted to a court, after reasonable inquiry, “is not being presented for any
improper purpose, such as to harass, cause unnecessary delay, or needlessly increase
the cost of litigation.” Fed. R. Civ. P. 11(b)(1). In determining whether an attorney
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or party violates this rule, the Court applies an objective standard of reasonableness.
See Ridder v. City of Springfield, 109 F.3d 288, 293 (6th Cir. 1997) (“In this circuit,
the test for imposition of Rule 11 sanctions is whether the attorney’s conduct was
reasonable under the circumstances.”) (citing Mann v. G & G Mfg., Inc., 900 F.2d 953,
958 (6th Cir. 1990)). “[A]n attorney’s good faith is not a defense.” Jackson v. Law
Firm of O’Hara, 875 F.2d 1224, 1229 (6th Cir. 1989).
In determining objective reasonableness under the circumstances, the Court
“is given wide discretion.” INVST Fin. Grp. Inc. v. Chem–Nuclear Sys., Inc., 815 F.2d
391, 401 (6th Cir. 1987). For a violation of this rule, “the court may impose an
appropriate sanction on any attorney, law firm, or party that violated the rule or is
responsible for the violation.”
Fed. R. Civ. P. 11(c)(1).
Notwithstanding this
language, the law of this Circuit mandates the imposition of sanctions for a violation
of Rule 11. “If a district court concludes that Rule 11 has been violated, the court has
no discretion and must impose sanctions.” INVST Fin. Grp., 815 F.2d at 401.
Beyond Rule 11, a district court has inherent authority to sanction bad-faith
conduct. First Bank v. Hartford Underwriters Ins. Co., 307 F.3d 501, 512 (6th Cir.
2002) (quoting Runfola & Assocs. v. Spectrum Reporting II, 88 F.3d 368, 375 (6th Cir.
1996)). Where a party litigates in bad faith or for oppressive reasons, a court may
invoke its inherent authority to award sanctions. Big Yank Corp. v. Liberty Mut. Fire
Ins. Co., 125 F.3d 308, 313 (6th Cir. 1997) (quoting Alyeska Pipeline Serv. Co. v.
Wilderness Soc’y, 421 U.S. 240, 247 (1975)). Such sanctions require finding that “the
claims advanced were meritless, that counsel knew or should have known this, and
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that the motive for filing the suit was for an improper purpose such as harassment.”
Id. (quoting Smith v. Detroit Fed’n of Teachers, Local 231, 829 F.2d 1370, 1375 (6th
Cir. 1987)). Although this standard overlaps to some degree with Rule 11, overall it
imposes a higher showing for the imposition of sanctions. See, e.g, BDT Prods. v.
Lexmark Int’l, Inc., 602 F.3d 742, 752 (6th Cir. 2010).
FINDINGS OF FACT AND CONCLUSIONS OF LAW
By way of background, on July 21, 2020, then-Speaker of the Ohio House of
Representatives Larry Householder was arrested in connection with his alleged role
in a $61 million bribery scheme to secure passage of legislation (House Bill 6) that,
among other things and to oversimplify, bailed out nuclear power plants in Ohio. On
July 30, 2020, a grand jury returned an indictment against Householder and others
in connection with the alleged scheme. Those allegations implicate FirstEnergy Corp.
At the time, Clearsulting provided outside audit services to FirstEnergy, and
Mr. Pircio worked for Clearsulting.
When news of the scandal broke, Mr. Pircio reviewed FirstEnergy’s audit
instructions to Clearsulting and the resulting audit Clearsulting performed. Based
on his review and his previous audit experience, Mr. Pircio observed that
Clearsulting’s 2019 audit of FirstEnergy may have violated one or more federal laws.
Within a few days, on July 23, 2020, Mr. Pircio had a conversation over Skype instant
messenger with a Clearsulting director regarding the scope of the 2019 FirstEnergy
audit and whether it was inappropriately limited. Shortly after that, Mr. Pircio also
raised the same issue by phone with a Clearsulting partner.
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A week later, on July 30, 2020, Clearsulting terminated Mr. Pircio. Despite
his termination, Clearsulting did not cut off Mr. Pircio’s access to its documents and
data or that of FirstEnergy until July 31, 2020 so that he could finish various projects
to which he was assigned.
Mr. Pircio then took 57 files from the Clearsulting
database relating to the 2019 audit of FirstEnergy. On August 7, 2020, Mr. Pircio
made a confidential report of suspected violations of federal law to the Securities and
Exchange Commission.
I.
August 21, 2020 Letter (ECF No. 1-3)
On August 20, 2020, a human resources manager at Clearsulting sent an email
to Mr. Pircio, copying outside counsel, advising that Clearsulting had identified unique files he had downloaded.
This email requested that Mr. Pircio notify
Clearsulting no later than noon on August 21, 2020 whether he transferred or
retained any Clearsulting files and that he immediately delete any such files.
In response, Mr. Pircio’s counsel in Washington, D.C., sent a letter to the
human resources manager.
This letter disclosed that counsel had provided
documents to government officials in connection with suspected violations of law.
Further, counsel advised Clearsulting that Mr. Pircio had not shared any company
information or documents with anyone other than counsel or, through counsel,
government officials.
When Plaintiffs filed suit on September 1, 2020, they attached various
documents to their complaint and simultaneously sought a temporary restraining
order and preliminary injunction to enjoin Mr. Pircio from disseminating their trade
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secrets and confidential information. One of those documents was the letter dated
August 21, 2020 from counsel for Mr. Pircio to Clearsulting.
The Court’s docket shows that FirstEnergy’s outside counsel at the time filed
this letter, both as an exhibit to the complaint (ECF No. 1-3) and to the motion for
temporary restraining order and preliminary injunction (ECF No. 2-3). By way of
explanation, FirstEnergy’s counsel defends the filing of this letter as necessary to put
a full record before the Court when seeking ex parte relief in the form of a temporary
restraining order. Further, based on his investigation as of that date, he believed
that his client had not violated any laws and did not know what Mr. Pircio intended
to do with the information he took following his termination. Clearsulting’s counsel
played a secondary role but endorsed the rationales FirstEnergy’s counsel offers.
FirstEnergy and its counsel took the lead on the filings, as one might suspect based
on these facts.
Counsel for both FirstEnergy and Clearsulting are experienced and
sophisticated lawyers. They well know that providing a full record to the Court, even
if seeking relief on an ex parte basis, does not require filing sensitive information on
the public docket. Based on the record regarding the filing of the August 21, letter, the Court cannot say that the actions of counsel for FirstEnergy or Clearsulting
are objectively unreasonable. Although counsel could have achieved the same ends
they purported to serve in other ways, such as filing under seal or proceeding in
camera, the Court will not second guess their strategic decisions, particularly ones
made on relatively tight timeframes and, in Clearsulting’s case, largely made by
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another party. In any event, the record shows that the filing of this letter did not
result in publicly identifying Mr. Pircio as a whistleblower.
II.
September 2, 2020 Letter (ECF No. 10-1)
Following the appearance of Mr. Pircio’s Ohio counsel, the parties negotiated
a resolution to Plaintiffs’ motion for preliminary injunction within approximately two
days. Under that agreement, the parties stipulated to entry of an injunction enjoying
Mr. Pircio from using or disclosing information he downloaded from Clearsulting’s
sharepoint site. He further agreed to return that information, except that his counsel
may retain a copy to defend the litigation Plaintiffs brought. Further, that stipulated
injunction allowed Mr. Pircio to cooperate with the Securities and Exchange
Commission or any other governmental agency in their ongoing investigations.
As an exhibit, the stipulated injunction attached correspondence dated
September 2, 2020 from Mr. Pircio’s counsel in Washington, D.C., to outside counsel
for FirstEnergy. That letter responded to the filing of this lawsuit and reiterated
what the previous letter said: that counsel had shared documents with a government
agency. This letter went further and specifically identified the agency as the SEC.
Like the previous letter, this one represented that neither counsel nor Mr. Pircio
shared the documents and information with anyone other than the SEC.
In negotiations over the language of the stipulated injunction, counsel for
FirstEnergy insisted on filing the September 2, 2020 letter on the Court’s docket
publicly. Mr. Pircio’s counsel provided revisions to drafts of the proposed stipulation
to avoid disclosure of this letter, but counsel for FirstEnergy refused to proceed
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without filing the letter on the Court’s public docket. Doing so served no proper
purpose.
Within days of the filing of the stipulated injunction on September 9, 2020,
which gratuitously and needlessly attached the September 2, 2020 letter, news
organizations in Cleveland and Ohio ran stories that the SEC was conducting an
investigation of FirstEnergy. They identified Mr. Pircio as the whistleblower who
provided the information that launched the SEC’s inquiry. Those news reports have
circulated around the country and are readily available online. Before the filing of
this letter, no public report connected Mr. Pircio to any investigation. Indeed, the
filing of this letter prompted news reports of an SEC investigation of FirstEnergy.
To defend filing the September 2 letter publicly, counsel for FirstEnergy, who
again took the lead, states that the letter’s author failed to object, as did Mr. Pircio’s
Ohio counsel when they appeared. Any reluctance or resisting to filing the document
counsel chalks up to a “misunderstanding.” Likewise, counsel for Clearsulting’s
position is that Mr. Pircio’s counsel did not object to filing this document in connection
with the stipulated injunction. Essentially, Plaintiffs’ counsel blame counsel for
Mr. Pirico.
The documentary evidence belies their claims and their defenses with respect
to this document. It shows, and the Court finds, that Mr. Pircio’s counsel proposed
changes to remove language from what became the stipulated injunction attaching
the letter, but Plaintiffs’ counsel refused to accept that proposal. At that point in the
proceeding, attaching the letter served no legitimate purpose. The justification of
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needing to provide a full record to the Court when seeking emergency injunctive
relief, potentially on an ex parte basis does not apply. Moreover, the September 2,
2020 letter provides the same material information as the first letter. Because this
second letter contains the additional information tying Mr. Pircio to the SEC’s
investigation, the record demonstrates and the Court finds that this filing had the
effect of publicly identifying Mr. Pircio as a whistleblower, which has had serious
adverse consequences for him, personally and professionally.
Based on this record, the best the Court can say for Plaintiffs’ counsel with
respect to this filing is that they were negligent or allowed their clients to use them
to advance improper purposes. In this view, their justifications for filing the letter,
though false and unsupported in the record, walk the line of technical compliance
with their obligations while simultaneously advancing the ulterior motives of their
clients. But their subjective good faith is not a defense under the law of this Circuit.
See Jackson, 875 F.2d at 1229.
Whether their actions are objectionably unreasonable presents a close call.
One fact tips the balance against such a finding. The conduct at issue occurred before
re-assignment of the case when another Judge was presiding. Therefore, the Court
declines to exercise its discretion to make such a finding on the facts and
circumstances before it.
CONCLUSION
Before concluding this matter, the Court makes a final point. One may fairly
view the filing of this lawsuit itself as a strong message to Mr. Pircio and others who
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might cooperate in any way with the ongoing investigations implicating FirstEnergy.
Indeed, it is difficult to see it any other way. But the Court needs to disabuse
Clearsulting of one suggestion it makes in response to the Order to Show Cause.
(ECF No. 37, PageID #392.) Dismissal of the complaint had nothing to do with the
Order to Show Cause. Nor did the parties’ respective claims, defenses, and legal
positions, which the Court evaluated on their own merits. Dismissal of a complaint,
which courts do every day, does not mean a party violated any rule or ethical
obligation.
Here, the Court has a grave concern that the actions of FirstEnergy and
Clearsulting used the Court to obstruct justice, engage in witness tampering, or
otherwise interfere with ongoing criminal and civil investigations. If they did (and
the Court expresses no opinion on that issue or on any conduct implicated in the
investigations), those ongoing investigations provide a better vehicle to remedy any
improper conduct. Accordingly, this matter is at an end.
SO ORDERED.
Dated: April 23,
J. Philip Calabrese
United States District Judge
Northern District of Ohio
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