Duke Energy office in Raleigh, North Carolina. Photo Credit: Alexisrael via Wikimedia Commons

The Delaware Supreme Court in a 4-1 decision Friday upheld the dismissal of a derivative suit seeking more than $145 million from the directors of Duke Energy Corp. over the handling of coal ash releases in North Carolina.

Over the strong dissent of the court's chief justice, a majority agreed with a Delaware Court of Chancery judge that Duke Energy stockholders had failed to show that the board had acted in bad faith in failing to prevent the crisis, which resulted in criminal fines and millions of dollars in restitution and environmental costs.

Vice Chancellor Sam Glasscock III dismissed the stockholder's Caremark claims earlier this year, finding that a pre-litigation demand was not excused because the company's directors did not face a substantial risk of personal liability for alleged violations of their duty of oversight.

On appeal, the plaintiffs argued that Glasscock had overlooked board reports and alleged collusion between directors and state regulators that, they said, showed the board knew the company was acting illegally but failed to act.

But Justice Collins J. Seitz Jr. on Friday agreed that the stockholders had failed to establish that Duke Energy's directors faced a substantial likelihood of personal liability under the Caremark theory, which is regarded as one of the most difficult corporate law theories on which plaintiffs can hope to prevail.

At most, Seitz said, board members faced the possibility of an exculpated breach of the duty of care, and the plaintiffs were required to make a demand that the board consider its own litigation before filing suit.

“None of this reflected well on Duke Energy. But, the question before us is not whether Duke Energy should be punished for its actions. That has already happened,” Seitz wrote for the majority.

“What is before us is whether a majority of Duke Energy directors face a substantial likelihood that they will be found personally liable for intentionally causing Duke Energy to violate the law or consciously disregarding the law. We find, as the Court of Chancery did, that the plaintiffs failed to meet this pleading requirement.”

In his ruling, Seitz rejected claims of collusion and said that the stockholders had tried to equate a “bad outcome with bad faith.” Seitz said that board minutes showed the directors received periodic updates about its compliance with environmental regulations and that an immediate threat was not apparent.

Friday's lone dissent came from Chief Justice Leo E. Strine Jr., who said the plaintiffs made an early showing that the Duke Energy board had supported a business strategy that “purposely skirted, and in many ways consciously violated, important environmental laws.”

In his eight-page dissent, Strine wrote that the stockholders should have been allowed to build out their case, and he slammed the directors for flouting the law in order to increase their profits.

“Duke's executives, advisors, and directors used all the tools in their large box to cause Duke to flout its environmental responsibilities, therefore reduce its costs of operations, and by that means, increase its profitability,” Strine said. “This, fiduciaries of a Delaware corporation, may not do,” he wrote.

Attorneys from both sides were not immediately available to comment on the decision.

Jeffrey W. Golan, of Barrack, Rodos & Bacine in Philadelphia, argued the appeal on behalf of the Duke Energy stockholders.

Kenneth J. Nachbar, of Morris, Nichols, Arsht & Tunnell, argued for the directors.

The case was captioned City of Birmingham Retirement and Relief System v. Good.