Arkansas Supreme Court orders dismissal of class action against Centerpoint Energy

By Michelle Massey, East Texas Bureau | Feb 20, 2008

TEXARKANA, Ark. -- The Arkansas Supreme Court ordered Circuit Court Judge James Hudson Jr. to dismiss the class action suit against Centerpoint Energy, which alleged Centerpoint was involved in a fraudulent natural gas selling scheme.

The ruling affirms and enforces an earlier decision that ruled the state regulatory agencies including the Arkansas Public Service Commission and the Texas Railroad Commission has exclusive jurisdiction and sole authority over gas rates.

Miller County, Ark., resident Weldon Johnson and Bowie County, Texas, resident Guy Sparks (later replaced by Angela Engledowl) filed the original complaint on Oct 8, 2004, against Centerpoint Energy and its affiliates in Judge Hudson's Miller County Circuit Court.

The plaintiffs allege that Centerpoint Energy fraudulently created huge company profits by participating in a "high-low" natural gas selling scheme by buying natural gas above market prices and then passing the cost on through reselling the regulated gas to residential and commercial customers in Arkansas, Texas, Oklahoma, Louisiana, and Mississippi.

Plaintiffs state the natural gas suppliers were then able to sell natural gas to unregulated Centerpoint subsidiaries below market prices who then sold to industrial and major commercial customers. The original complaint alleges the scheme allowed Centerpoint an unfair competitive advantage.

Causes of action filed against the defendants include fraud, unjust enrichment, and civil conspiracy. The plaintiffs were seeking an award of actual monetary damages because of the alleged fraud, attorneys' fees, court costs and punitive damages.

The recent opinion came after the defense petitioned the Supreme Court of Arkansas seeking an extraordinary writ to stop the Miller County Circuit Court from continuing with proceedings. Defendant Centerpoint argued that the circuit court exceeded its jurisdiction in failing to recognize or obey the Arkansas Supreme Court's early opinion of June 7, 2007, in which the higher court ruled that the Arkansas Public Service Commission has exclusive jurisdiction over the rate issues alleged in the case.

The court's first opinion stated that the plaintiffs were attempting to "disguise their claims by labeling them as common law torts, but this court must look beneath the labels and inquire into the true nature of the complaint. In doing so, it is clear that the complaint is essentially that Centerpoint has overcharged the [plaintiffs] and proposed class members."

After the first opinion was released, the defense filed a motion to dismiss the case with the circuit court. However, the plaintiffs responded arguing that the Arkansas Supreme Court's opinion did not dismiss any parties or any claims. Further, the plaintiffs held that the opinion did not change the essence of the case, which the plaintiffs contend was about rates and not about fraud.

Miller County Circuit Court Judge James Hudson denied the motions to dismiss but stayed all Arkansas claims pending the public service commission's decision. However, Judge Hudson "explicitly refused to dismiss" the Arkansas plaintiff and stated that venue was proper based the retention of the Arkansas residents' claims.

With the recent opinion released on Feb. 14, the defendants were asking for the higher court to enforce its early decision and order the lower court to dismiss the case. The opinion found that the "circuit court was wholly without jurisdiction," over the Arkansas residents' claims. The opinion argued Judge Johnson was not in compliance because a "court cannot retain jurisdiction over a proceeding for which it does not have jurisdiction in the first place."

The Arkansas Supreme Court then stated that there was no basis for retaining venue over the Texas residents' claims and directed the circuit court to dismiss the allegations "in its entirety."

Arkansas Supreme Court Judges Danielson and Hannah concur with the majority opinion and stated that they believe that the case is more than a simple rate case but a case about unjust enrichment.

Case No. 04-327-2

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