The criminal case against five utility officials indicted on federal corruption charges is being delayed by a dispute over whether the Connecticut Municipal Electric Energy Cooperative must cover legal defense costs, including a federal civil lawsuit filed by one defendant demanding coverage.

The dispute has prompted state Municipal Electric Ratepayer Advocate Bill Kowalski to recommend that CMEEC consult with the state Attorney General’s office for an “objective third party” analysis to resolve the issue.

CMEEC CEO Drew Rankin, Chief Financial Officer Edward Pryor, Norwich Public Utilities General Manager John Bilda and former CMEEC board members James Sullivan of Norwich and Edward DeMuzzio were indicted Nov. 8 on one count each of conspiracy and three counts each of theft from a program receiving federal funds for their roles in CMEEC’s hosting of lavish trips to the Kentucky Derby for CMEEC board, top staff, family members and guests from 2013 to 2016. Rankin and Sullivan face the same charges in a second indictment over CMEEC’s reimbursement of nearly $100,000 in Sullivan’s personal expenses.

Since the Nov. 8 indictments, The Day has made repeated inquiries to CMEEC officials on whether the cooperative — owned by six municipally owned utilities in the state — would pay for the defense of the indicted cooperative officials.

On Thursday, CMEEC General Counsel Robin Kipnis responded in an email saying CMEEC "has not paid, advanced or reimbursed any legal fees in connection with those under federal indictment." Kipnis said CMEEC submitted a claim with its directors' and operators' insurance carrier, National Union Fire Insurance Co. of Pittsburgh, and is awaiting final determination on whether the insurance will cover the legal costs.

New Haven U.S. District Court Judge Jeffrey A. Meyer on Thursday continued a scheduling conference in the case to Feb. 15, citing “the continuing uncertainty about funding for defense counsel as well as the filing by defendant Edward Pryor of a civil lawsuit against the Connecticut Municipal Electric Energy Cooperative (CMEEC) seeking to require CMEEC to continue paying for defendant Pryor's legal fees.”

In his lawsuit filed Jan. 17, Pryor, who retired Jan. 1 and now lives in Davidson, N.C., accused CMEEC of “wrongful termination” of legal fees Nov. 9, one day after the indictments were handed down. Stamford attorneys Michael English and Tony Miodanka are representing Pryor in both the civil and criminal cases.

CMEEC paid about $370,000 from late October 2016 through October 2018 in legal costs for all parties during the FBI investigation that included responses to subpoenas and grand jury proceedings in the lead-up to the indictments.

Pryor argued in his suit that the indictment charges involved the same allegations that were being investigated over the previous two years, when CMEEC was paying legal expenses, and CMEEC was aware of those allegations.

“CMEEC’s Bylaws clearly require it to advance all expenses, including attorneys’ fees, incurred by Mr. Pryor in connection with the criminal proceedings currently pending in this District because the allegations in the indictment relate to Mr. Pryor’s conduct in his official capacity as the Chief Financial Officer of CMEEC,” the lawsuit stated. “Timely advancement of his legal fees and other expenses is critical and essential for Mr. Pryor to defend himself effectively against the pending criminal charges he faces in this District.”

Kipnis said if necessary, the CMEEC Board of Directors “will make a determination” on whether to pay the legal costs, based on board’s bylaws, state law and the findings of a special board committee conducting its own investigation into the actions of Rankin and Pryor. The committee is scheduled to meet at 1 p.m. Wednesday at the CMEEC office in Norwich and the full board's next regular meeting is slated for 10 a.m. Thursday in Norwalk.

The special committee is expected to receive findings from independent attorney, Eileen Duggan, in late February.

CMEEC board Chairman Kenneth Sullivan could not be reached Friday regarding Pryor’s suit.

Norwich Public Utilities is not paying for the legal defense for Bilda, whose indictment was based on his position on the CMEEC board.

The board’s bylaws are central to the dispute. Municipal ratepayer advocate Kowalski worked with the Board of Directors to revamp the bylaws last summer and fall. Kowalski pushed to replace broad wording on coverage of legal costs of corporate officers and board members.

The changes adopted in October by the board added the word “reasonable" and stated that CMEEC shall indemnify employees and officers, “including the right to receive in advance reasonable attorney fees.”

In response to Kowalski's numerous questions about whether CMEEC was paying legal fees, CMEEC said all five indicted officials had signed separately a statement titled “Affirmation and Undertaking” prior to the indictments.

In that statement, the signers maintained they acted “in good faith and in a manner that I reasonably believed to be in, or not opposed to, the best interests of CMEEC, and I had a reasonable belief that my conduct was lawful.”

The statement also said if the CMEEC Board of Directors and applicable laws find that they are not entitled to indemnification: “I will promptly repay CMEEC on request for the amounts of legal fees, expenses and other costs that CMEEC has advanced or reimbursed on my behalf for legal fees and expenses.”

In his lawsuit, Pryor said CMEEC required him to sign the Affirmation and Undertaking statement on June 6, 2018, prior to agreeing to advance his legal fees and expenses associated with the FBI investigation. CMEEC paid Pryor’s attorney fees from June to October 2018, the suit said, but abruptly stopped Nov. 9, one day after the defendants were indicted.

On Nov. 9, the CMEEC board voted to place both Rankin and Pryor on unpaid leave during its own investigation into the federal charges.

“There is no good faith basis for CMEEC’s abrupt decision to renege on its promise to Mr. Pryor and breach its obligation to advance his legal fees and expenses,” Pryor’s lawsuit stated. “Rather, the decision is being driven by self-interested political maneuvering, including by CMEEC board members who were invited to, participated in and/or approved the conduct described in the Indictment.”

c.bessette@theday.com