Background

History
In 1938, Cobb Electric Membership Corporation (EMC) was founded by the members it serves as a non-profit electric cooperative to help provide electricity to areas in and around rural Cobb County, Georgia. Since its inception, Cobb County has grown from an agricultural community into a sprawling suburb of Atlanta, making Cobb EMC one of the largest co-ops in the United States with over 177,000 members. Cobb EMC is owned by its members (the customers) and managed by a Board of Directors who are charged with democratic representation of the membership in all decision-making responsibilities. Nationally, EMCs are organized under seven core principles known as the Cooperative or Rochdale Principles, which include voluntary and open membership, democratic member control, members’ economic participation, autonomy and independence, education, training and information, cooperation among cooperatives, and concern for community. These Principles establish the foundations for an open, transparent EMC, fair to all Members.

Lawsuit

In October 2007, several members of Cobb EMC filed suit against the cooperative’s management and board members. The suit alleged “gross mismanagement, breach of fiduciary duty, self-enrichment, and waste of corporate assets, specific to the relationship between Cobb EMC and Cobb Energy, Inc.”. Cobb Energy was created in 1997 as a for-profit entity, which would be responsible for the day-to-day operations of Cobb EMC after Cobb Energy and Cobb EMC signed a 40-year operating contract. The contract allowed Cobb Energy to take an 11 percent markup for running Cobb EMC. The plaintiffs argued that Cobb EMC board members were moving millions of dollars in EMC assets and funds to Cobb Energy. Judge Stephen Schuster of the Cobb County Superior Court heard arguments in the case and in December 2008, after nearly 14 months of litigation, a settlement agreement between the two parties was reached.

The settlement required Cobb EMC to acquire Cobb Energy for an estimated cost of $47 million and end the relationship between the two entities. However, the plaintiffs’ attorneys claimed, “the co-op will net $65 million in the deal approved. The operating contract’s markup alone was costing the co-op more than $5 million per year.” The settlement also required Cobb EMC to make its election process more democratic. However, changes made in the bylaws in regards to member voting would bring the case back into court.

Although the settlement in December 2008 appeared to end the case, the plaintiffs found that the Cobb EMC board was not following through with the court order to make board elections more democratic. The plaintiffs appealed the case to the Georgia Court of Appeals. Board elections were suspended by the Court of Appeals until a resolution of the suit was reached. On April 14, 2010, the Georgia Court of Appeals ruled unanimously in favor of the plaintiffs, finding that the bylaw changes focusing on elections and proxy voting were in violation of the 2008 settlement agreement between the plaintiffs and Cobb EMC. The Appeals Court ordered Superior Court Judge Stephen Schuster to enforce the settlement between the two parties.

Cobb EMC appealed the ruling to the Georgia Supreme Court (GASC) on April 23, 2010. In November 2010, the Georgia Supreme Court accepted Cobb EMC’s writ of certiorari, and oral arguments occurred in February 2011. The GASC ruled that Cobb EMC could not use proxies as defined in the settlement, and enforced the ruling of the Appeals Court.

Later that summer, both parties met with Judge Stephen Schuster who enforced the ruling with a new order, and hammered out a schedule for new board elections. Schuster also lectured the current Board on their failure to hire a new president and CEO of Cobb EMC. The Board had approved a consulting contract with former CEO Dwight Brown, effectively making an end-run around the court order. The matter is now considered settled.

Corruption Scandal and Indictments

In 2009, Cobb EMC found itself in the midst of even more legal difficulties. In April 2009, the Cobb County district attorney’s office and the Georgia Bureau of Investigation (GBI) executed a search warrant related to possible theft and racketeering among Dwight Brown and board members including Larry Chadwick, David McGinnis and Frank Boone. GBI agents confiscated files from Cobb EMC headquarters and the personal residences of several board members.

On January 6, 2011 a Cobb County grand jury indicted Cobb EMC president/CEO Dwight Brown on 31 counts including racketeering and theft. Brown is accused of using Cobb EMC funds for various purposes without permission from Cobb EMC or its members. In March, Judge Robert Flournoy tossed the indictment against Brown citing a technicality. The Cobb County D.A.’s office has appealed the ruling to the GA Supreme Court.

In July 2011, Dwight Brown was re-indicted, this time with 35 felony charges. The same 31 charges against Brown were refiled along with 4 new counts of threatening and intimidating witnesses that spawned from a lawsuit Cobb EMC filed against the plaintiffs in the derivative suit. On Nov. 30, 2011, Brown’s attorneys argued that the charges should be dropped. A decision by the Court of Appeals in June 2013 upheld the second indictment, but dismissed the 4 new counts, and remanded the case back to the Cobb County Court.

FERC Investigation Request

On April 26, 2011, two Cobb EMC customers requested an investigation of Cobb EMC by the Federal Energy Regulatory Commission. Of the many allegations made in the request, the customers pointed out that Cobb EMC failed to disclose information that violates federal regulations. For more detailed information a fact sheet of the alleged violations can be found here.

Elections

On September 17, 2011, Cobb EMC members attended their first members meeting in over three years. Members roundly rejected the EMC’s attempt to hold board elections by mail-in ballots, fearful that a mail-in vote would ensure the reelection of incumbent board members. Voting down this measure ensured that voting would be held in-person and votes would be counted by an independent third party.

On November 12, 2011, EMC members returned to the polls for the first board elections since 2007. Four new board members were elected: Ed Crowell in Area 1, David Tennant in Area 6, Charles Malcolm Swanson in Area 7 and Cheryl Meadows in Area 10. On March 31, 2012, EMC members elected another four board members: Rudy Underwood (Area 2), Kelly Bodner (Area 3), Bryan Boyd (Area 8), and Eric Broadwell (Area 9). Jim Hudson and Tripper Sharp of Areas 4 and 5 respectively, won first place, but did not win enough votes for a majority.

In runoff elections, David McClellan defeated Jim Hudson for Area 4 and Tripper Sharp defeated Charles Sevier for the Area 5 seat.

By these elections, the entire Dwight Brown-era Board was replaced. The new Board went on to promulgate an entirely new set of Bylaws for the EMC, which were approved by the Members at the Annual Meeting in September 2012. Additional positive steps included new procedures to allow open Board Meetings, and the publishing of the minutes of Board Meetings in a much more timely fashion.

Going Forward

As the future of Cobb EMC unfolds, it is critical that Member/Owners remain active and vigilant to ensure that the historical problems that led up to the lawsuit are never repeated. The Cobb EMC Forum was created to help achieve that objective.