Duke Energy lawyers accused of deceit

This story has been corrected.

U.S. District Court Judge Larry J. McKinney is threatening to suspend counsel for Duke Energy, including its local attorneys,
from practicing in federal court after finding they misled Indianapolis jurors last May in a trial over air-pollution violations.

Among those being called to account are three current and one former attorney at the Indianapolis office of Taft Stettinius
& Hollister LLP, a Cincinnati-based law firm that last April acquired local firm Sommer Barnard.

The former Taft attorney caught up in the predicament is Debra McVicker Lynch, a recently appointed federal magistrate judge
who works one floor above McKinney in the Birch Bayh Federal Building and U.S. Courthouse downtown.

Lynch withdrew from the Duke case in October to accept her judicial post. Duke’s principal counsel in the air-pollution case
is the Washington, D.C., office of Sidley Austin LLP, a giant law firm with 1,800 lawyers in 16 offices from Chicago to Shanghai.

Judge McKinney wants a written statement by Jan. 9 from all Duke counsel of record in the case as of May 5 regarding what
each knew about the status of a consulting agreement Duke held with a witness at the May trial, "including a date upon
which
such information was made known to him or her."

That witness, former Duke plant manager Robert Batdorf, was presented to the jury as a retiree of the company. While indeed
retired, the jury was not told he had a consulting agreement with Duke that paid him $200 an hour.

McKinney last month ruled for a new trial on grounds that the utility and its counsel misrepresented Batdorf’s status in what
"amounts to misconduct."

The trial last May was the zenith of a 9-year-old case brought by the U.S. Department of Justice against Cincinnati-based
utility Cinergy Corp., which Charlotte, N.C.-based Duke acquired in 2006.

Other plaintiffs in the case were the Hoosier Environmental Council, the Ohio Environmental Council and the states of New
York, New Jersey and Connecticut.

The federal government alleged Cinergy made modifications to several of its power plants in violation of U.S. Clean Air Act
rules.

Last May, the federal jury in Indianapolis found Cinergy violated federal rules at its Wabash plant in Terre Haute, but cleared
the company regarding modifications made at four other plants in Indiana and Ohio. On balance, the verdict was a victory for
Duke.

But the celebration was short-lived. Federal attorneys took a fine-toothed comb to Duke’s witnesses and found out about the
consulting agreement with Batdorf that had not been disclosed to the jury. The government presented the evidence to McKinney
and easily won permission for a new trial on grounds of misconduct by Duke counsel.

McKinney also recently ordered Duke’s lawyers to appear before him on Jan. 13 "to show cause why Cinergy’s counsel should
not be suspended immediately from practice before this court, and why Cinergy and its counsel should not be ordered to pay
for plaintiffs … attorneys’ fees."

It’s unclear whether any of the Taft attorneys in Indianapolis were involved in the representations made to the jury about
witness Batdorf. Indianapolis Taft attorneys working on the case, other than former Taft attorney Lynch, were Scott Alexander,
Robert Clark and John Papageorge.

Asked for comment, Taft partner-in-charge Robert J. Hicks said: "Unfortunately, because this is a pending matter, we
are unable
to comment at this time."

Lynch also declined to comment.

Trial theme backfires

The specter of a new trial and sanctions against Duke counsel may not have occurred had Duke not made so much of contrasting
its lineup of current- or retired-employee witnesses with those of the Justice Department’s lineup of paid consultants in
the case.

McKinney said the utility at trial "pressed a theme that included positioning its fact witnesses as ordinary working
men who
where more trustworthy and believable than [the government’s] paid expert witnesses."

In one case Duke attorneys got one witness to testify he was paid about $250,000 by the Justice Department and the U.S. Environmental
Protection Agency related to pollution cases, while another witness said he received on the order of $500,000.

"It was clear [Duke’s] defense was grounded in a paid versus unpaid testimony theme," McKinney wrote.

He said the $200-an-hour fee Batdorf received was beyond the reasonable value of time lost "for a person who purports
to be
retired," particularly in light of Batdorf’s compensation during a 2005 consulting agreement with the company, in which
he
received $88 an hour.

The judge continued, saying that Duke’s counsel "may have counseled or assisted Batdorf to testify falsely about his
employment
status."

The court "concludes that [Duke’s] misrepresentation about payment of one of its fact witnesses, Batdorf, amounts to
misconduct.
Because of such misconduct, the liability trial in this matter was tainted."

Next move

Duke has not said whether it will appeal McKinney’s order for a new trial. The company is awaiting the outcome of the Jan.
13 hearing regarding attorney conduct, said spokeswoman Angeline Protogere.

Duke also has hired Indianapolis law firm Barnes & Thornburg as counsel in place of Taft, "out of an abundance of
caution."

Protogere said that whether or not the witness was compensated for his time does not change the essential issues of the case.
"We’re confident another jury would rule in our favor."

She said Duke has spent more than $1.5 billion to reduce nitrogen oxide emissions since 1998 and that another $3.5 billion
is being spent by 2010 to further reduce nitrogen oxides and sulfur dioxides.

An attorney and officials of Hoosier Environmental Council declined to comment about the new twists in the case.