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Cooperatives’ Capital Credit Accounts Viewed as Lucrative Targets for Class Action Litigation

Several electric cooperatives throughout the country have been the subject of class action lawsuits targeting their unretired capital credits.  The lawsuits were filed by one or more members or former members against the cooperative and, in some instances, against directors and management.  The litigation is being conducted by plaintiffs’ law firms that are working together and sharing resources.

To date, no lawsuit has been resolved on the merits, while one has been settled and another has been dismissed due to the court’s lack of jurisdiction.  Nevertheless, the plaintiffs’ law firms are growing increasingly creative and resourceful in their arguments and tactics.  As a result, we expect to see more class action lawsuits after this first wave concludes (and resources can be directed to targeting other cooperatives).

AHC’s cooperative law attorneys have written and presented extensively on this topic, especially concerning proactive steps, both legal and non-legal, that cooperatives can take to bolster their defenses.  One non-legal measure we always recommend is member education.  These lawsuits are largely products of the lack of understanding of members (and plaintiffs’ lawyers) of cooperative principles and cooperative operation. The more cooperatives educate their members, directors, management, employees, and their communities about capital credits and general cooperative principles, the less likely it is that misperception of cooperatives will result in expensive litigation.

AHC has previously developed a summary of the class action lawsuits.  Because of the increased interest in this subject, and at the request of attorneys and managers, we have decided to post the summary on our blog.  Please stay tuned to our blog for updates and analysis of these lawsuits and their implications to cooperatives.

Posted by David R. Cook Jr.  View David’s profile.  View the Cooperative Law Practice website.

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