THE VIRGINIAN-PILOT
Copyright (c) 1995, Landmark Communications, Inc.
DATE: Sunday, July 16, 1995 TAG: 9507160049
SECTION: LOCAL PAGE: B1 EDITION: NORTH CAROLINA
SOURCE: BY LANE DEGREGORY, STAFF WRITER
DATELINE: BUXTON LENGTH: Medium: 90 lines
The fired accountants for the Cape Hatteras Electric Membership Cooperative say they don't owe the Outer Banks utility a dime.
Instead, a lawyer for the Danville, Va., accounting firm Johnson & Dooley alleges that the power co-op owes the accountants $16 million in damages.
A suit filed in U.S. District Court in Richmond says officials with the member-owned electric company ``falsely accused Johnson & Dooley of misconduct and unjustly terminated Johnson & Dooley in hopes that critics of Cape Hatteras Electric would be stilled by those actions.
``As a proximate result of the false and malicious, slanderous, libelous and defamatory statements,'' the suit says, ``Johnson & Dooley . . . have been caused to suffer exposure to public infamy, scandal and disgrace, injury to their good reputation, harm in the conduct of their business affairs, and financial loss, and have been and will forever be hampered in the practice of their business.''
The lawsuit is the latest round in a continuing controversy between the Cape Hatteras electric co-op and its former attorneys.
Power company officials hired Johnson & Dooley in 1979 for consulting and accounting. Ten years later, co-op executives also asked their accountants to conduct an annual audit.
The electric company - which provides power for all Hatteras Island homes and businesses - signed an agreement with Johnson & Dooley in 1993 under which the accounting firm agreed to provide routine services for $5,600 a month. The agreement was to be effective from May 1, 1993, until April 30, 1996. In late 1993, power company officials asked their accountants to conduct a feasibility study on a proposed $21 million transmission plant.
In July 1994, Cape Hatteras Electric board members hired a new manager, John A. Echols. Echols resigned from the power company in October. He said directors were meddling too much in daily operations and were paying their accountants too much money.
Echols released co-op financial statements showing that Johnson & Dooley had charged more than $400,000 for accounting and consulting services between November 1993 and October 1994.
In January, directors of the power co-op fired the accounting firm after an outside auditor said Johnson & Dooley had overbilled Cape Hatteras Electric by more than $100,000.
The electric company then filed a civil suit in U.S. District Court in Richmond, asking for at least $700,000 in damages.
The countersuit, which Johnson & Dooley attorneys filed last month, is the most recent piece of litigation. Lawyers are taking depositions this week. A jury trial is scheduled for Aug. 25 at 9:30 a.m. in U.S. District Court in Richmond.
Cape Hatteras Electric will be represented by its new attorney, John Y. Pearson Jr., of the Norfolk firm Willcox and Savage.
The power company's former attorney, Norman W. Shearin Jr., voluntarily removed himself from the case last month, said co-op Manager James Sherfey. Johnson & Dooley's lawyers asked that Shearin not represent the power company. They refused to return repeated telephone calls last week.
``Norm Shearin will be a witness for us in the case,'' Sherfey said of his former lawyer.
Sherfey said Johnson & Dooley's countersuit is ``without merit. We expect to prevail in the case.''
A nonprofit cooperative owned by its 3,800 Outer Banks members, Cape Hatteras Electric Membership Cooperative employs about 20 people full time.
In November 1994, electric company directors hired Virginia Beach public relations firm Brickell & Associates to provide consulting services and help the beleaguered co-op improve its image. The public relations firm received $7,500 a month for its services. Sherfey said the monthly contract with the public relations firm expired last month.
Johnson & Dooley's countersuit says the public relations consultants ``recommended to board members that Johnson & Dooley be terminated.
``The termination press release and Sherfey's statements were false and misleading because Johnson & Dooley did not overbill Cape Hatteras Electric,'' says the countersuit. ``Its bills were in accordance with contract billing procedures. There were no accounting irregularities and no unwarranted fees had been paid.
``From the hiring of Brickell & Associates to the date of the filing of this counterclaim, Cape Hatteras Electric has acted in bad faith and maliciously toward Johnson & Dooley with the specific intent of using Johnson & Dooley as a scapegoat for its political troubles.''
The countersuit says that in addition to $16 million in damages, Cape Hatteras Electric owes its former accountants $123,503.64 for back services and expenses and $89,600 for early termination of the monthly services agreement.
Legal charges against the power co-op include defamation, statutory conspiracy, unfair trade practices and breach of contract. by CNB