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Sixth Circuit Vacates Class Certification In Securities Fraud Lawsuit Against Electric Services Company
08/26/2025On August 13, 2025, the United States Court of Appeals for the Sixth Circuit vacated a district court order granting class certification in a putative securities class action against an electric services company (the “Company”) and certain of its current or former executive officers and directors. In re FirstEnergy Corp. Sec. Litig., Nos. 23-3940/3943/3945/3946/3947 (6th Cir. Aug. 13, 2025). As relevant to the appeal, plaintiffs asserted claims under Section 10(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Rule 10b-5 thereunder, alleging that the Company and its executives made materially false and misleading statements and omissions regarding the Company’s political activities, compliance, and internal controls in connection with an alleged bribery and corruption scheme. Plaintiffs also asserted claims under the Securities Act of 1933 (the “Securities Act”) that were not at issue on appeal. The United States District Court for the Southern District of Ohio certified the class on March 30, 2023. The Sixth Circuit vacated the class-certification order, holding that the district court erred in applying a presumption of reliance to plaintiffs’ primarily misstatement claims under Affiliated Ute Citizens of Utah v. United States, 406 U.S. 128 (1972), and further held that the district court failed to conduct a “rigorous analysis” of plaintiffs’ proposed class-wide damages methodology as required by Comcast Corp. v. Behrend, 569 U.S. 27 (2013).
Plaintiffs alleged that, between 2017 and 2020, the Company and its senior executives orchestrated a bribery scheme to make significant financial contributions to a politician through a network of lobbyists and shell companies purportedly to secure a bailout for the Company’s nuclear energy losses, while making public statements and SEC filings that allegedly misrepresented or failed to disclose the nature of the Company’s political activities and associated risks. For example, plaintiffs pointed to proxy statements issued by the Company in connection with a 2017 shareholder meeting, where one item of business was a shareholder proposal to require an annual report on lobbying policies and payments, in which the Company urged shareholders to vote against the proposal and “represented that [it] complie[d] with all federal and state lobbying registration and disclosure requirements” and “ha[d] decision-making and oversight processes in place for political contributions and expenditures to ensure such contributions or expenditures are legally permissible and in the best interests of [the Company].” In addition, plaintiffs alleged that the Company’s filings with the SEC disclosed its pursuit of “legislative or regulatory solutions” but made no mention of the legal, financial, and reputational risks involved in how the Company was pursuing those solutions. Plaintiffs alleged that these alleged misstatements and omissions artificially inflated the price of the Company’s securities, causing investor losses when the scheme was revealed and the Company’s market capitalization declined.
The district court certified the Exchange Act class, holding that plaintiffs were entitled to a presumption of reliance under the Supreme Court’s Affiliated Ute analysis, which it applied based on its determination that the alleged misrepresentations were “primarily omissions-based.”
The Sixth Circuit vacated the district court decision, finding that the Exchange Act claims were not “primarily omissions-based,” and therefore the Affiliated Ute presumption of reliance was not applicable. According to the Court, the Affiliated Ute presumption applies only to cases primarily based on alleged omissions, while half-truths and generic, aspirational corporate statements are misrepresentations, and the proper presumption of reliance analysis for misrepresentation claims is the analysis set forth in the Supreme Court’s decision in Basic Inc. v. Levenson, 485 U.S. 224 (1988).
The Sixth Circuit held that to determine whether a “mixed” case (i.e., claims based on alleged misrepresentations and omissions) is primarily based on misrepresentations, a district court must assess four factors: (i) whether the alleged omissions are just the inverse of a misrepresentation; (ii) “reliance is practically possible to prove by pointing to a misrepresentation and connecting it to the injury;” (iii) the primary thrust of the claims involves the alleged misrepresentations; or (iv) the alleged omissions have “no standalone impact apart from” the alleged misrepresentations. According to the Sixth Circuit, if any of the four factors is met, the case is primarily about misrepresentations and the Basic presumption analysis applies, not the Affiliated Ute presumption. The Circuit Court then determined that the alleged omissions in this complaint were merely the inverse of the alleged misrepresentations, and the district court therefore should have applied the Basic presumption analysis rather than Affiliated Ute. Accordingly, the Court vacated the district court’s decision and remanded to consider the proper analysis.
The Sixth Circuit further held that the district court failed to conduct the required “rigorous analysis” of whether plaintiffs’ damages methodology was capable of measuring damages on a class-wide basis for their Exchange Act claims, as required by the Supreme Court’s decision in Comcast. The Sixth Circuit found that the district court inappropriately relied on its Securities Act damages analysis in conclusory fashion, which was based on a specific statutory formula set forth in the Securities Act that differs from the required analysis under the Exchange Act. According to the Court, “when presented with a class-certification order that fails to conduct a rigorous analysis, [it] generally remands to the district court … for the application of Comcast’s ‘rigorous analysis’ to determine if Plaintiffs for their Exchange Act claims set forth a methodology for calculating damages on a class-wide basis that is susceptible of measurement across the entire class and satisfies the predominance requirement of Rule 23(b)(3).”
Accordingly, the Sixth Circuit vacated the class-certification order to the extent it applied the Affiliated Ute presumption and remanded for further proceedings, instructing the district court to analyze reliance under the Basic presumption and to conduct a rigorous analysis of plaintiffs’ Exchange Act damages methodology under Comcast.
