Message-ID: <23409778.1075845021146.JavaMail.evans@thyme> Date: Mon, 26 Feb 2001 09:00:00 -0800 (PST) From: mark.haedicke@enron.com To: james.derrick@enron.com Subject: Blakes Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit X-From: Mark E Haedicke X-To: James Derrick X-cc: X-bcc: X-Folder: \Mark_Haedicke_Oct2001\Notes Folders\All documents X-Origin: HAEDICKE-M X-FileName: mhaedic.nsf Jim: Here is the background of the "dispute" with Blakes. There is a lot of emotion on both sides. I believe we need Blakes on a going forward basis in Canada. Mark Haedicke ----- Forwarded by Mark E Haedicke/HOU/ECT on 02/26/2001 04:56 PM ----- Peter Keohane 02/08/2001 03:52 PM To: Mark E Haedicke/HOU/ECT@ECT cc: Subject: Blakes Mark, I understand that you and Jim D. are meeting in Houston next week regarding Blakes, their mismanagement of the NGX litigation, and other matters. I am providing you the following report, so as the facts and issues are clear. I am taking the time to send you this report because I am concerned that Dan Fournier has demonstrated to date that he either does not understand the facts and issues (which is amazing) or believes he can obfuscate and resolve the issues through political maneuvering. You will recall that this matter kicked off late in Sept./00 with NGX giving us two days' notice that they were taking over control of the methodology for determining the prevalent gas indices effective Oct. 1/00. You will also recall that the matter was of significant concern to John Lavorato and Greg Whaley, among others, and following a conference call with John, Greg, Steve Kean, Rick Shapiro and others, it was agreed that we would consider our legal remedies, including that I would prepare a draft stern letter to NGX advising them of our concerns and the potential for litigation with Enron, both for internal review and review by outside counsel. I discussed the facts and the letter with Blakes (Dalton McGrath) who advised me that he would also be discussing the matter with a competition law partner in Toronto. In the end Blakes had some minor comments on the letter and provided a cover letter confirming that in the circumstances we had a difficult put provable case. One issue raised by the letter was the potential involvement of NGX's shareholders, for a number of reasons, including: (i) NGX had only two shareholders, Westcoast Energy and OM Gruppen, who to our knowledge controlled the mind and management of NGX; (ii) OM Gruppen is in the business around the world of purchasing or creating electronic exchanges and had recently purchased its position in NGX from Westcoast; Westcoast is the sole shareholder of Engage Energy, a energy trading competitor; (iii) NGX's transaction for acquiring control of the indices was an aggressive, structured attack designed to cause harm to EOL and regain market share that EOL had taken away; and, (iv) NGX is a limited liability entity with little in hard assets and therefore may have been judgment proof. Obviously, if the evidence or commercial/strategic reasons warranted not proceeding against the shareholders at any time, it was our intention not to continue to proceed against them. In short, Blakes was aware from the outset of our intention to involve Westcoast in any litigation. As expected, we did not receive a satisfactory response to our letter to NGX, and between late Sept./00 and Nov. 29/00, the date we filed the lawsuit and applied for injunctive relief, I had countless further discussions with Blakes to draft, and redraft, and redraft again, a Statement of Claim and Motion documents, all of which clearly involved Westcoast as a named defendant. Although the Court would not grant an injunction "ex parte", an aggressive timeline was established for filing affidavits and briefs, completing cross-examinations, etc. with the injunction application set for Dec. 20/00, to our strategic advantage. We were proceeding vigorously on this basis when to my surprise I received a phone call from Dan Fournier on Dec. 4/01 (9 weeks into the matter) to advise me that there was a "legal" conflict problem involving Westcoast, who is occasionally represented out of Blakes' Toronto office by Glenn Leslie. I explained to Dan that if there was a conflicts problem between Enron and Westcoast, and although I was willing to do what I could in the circumstances, I was extremely concerned as to what could be done at that stage prior to the injunction hearing, noting the conflicts problem was of Blakes own making. Indeed it seemed it was the problem of a Toronto-based partner who did not pay enough attention at the outset to look after his firm's and his own client's interests, which then needed to be resolved on an after-the-fact basis. Although the problem was initially misleadingly presented to me by Dan as a legal conflict on the basis of Blakes having "certain confidential information regarding Westcoast", which I suspected to be a justification rather than the truth, when probed, Dan admitted that the conflict was a business conflict rather than a legal conflict. Nonetheless, it was suggested by Dan that Blakes could proceed if Enron discontinued the action against Westcoast, which obviously was not advice given in Enron's interest. I responded that this was not only unacceptable from a strategic if not legal position, and it was emphasized by me to Dan as being unnecessary and meaningless for the purposes of the injunction application, as the injunction was being sought against NGX and Canadian Enerdata, and no immediate remedy was being sought against Westcoast. Nonetheless, and as a favor to Blakes, I agreed that if Blakes acted on the injunction only (which, as noted, did not involve Westcoast) scheduled for Dec. 20th, I would transition the file to another firm immediately after the injunction, in an orderly manner that did not adversely affect Enron's interests. This result was not apparently acceptable to Blakes. Late that evening I was advised by Dan that a call was being had at Blakes first thing the next morning involving Blakes' Chairman, Blakes' Managing Partner, the Westcoast responsible partner (Glenn Leslie) and the Enron responsible partner (Dan Fournier) to discuss the issue, and if it could not be resolved satisfactorily, Dalton McGrath, who is a more junior partner, would likely be held accountable. Unsatisfied that my relationship with Dalton McGrath was being put into issue, and after reviewing the matter that evening at the time and inconvenience of Milnthorp at home, I called Dan first thing (7:00 am) the next morning to nonetheless reiterate to him that I would not only undertake to relocate the file, but I would try to do my best to move the file if possible ASAP, even BEFORE the injunction application, provided I could be satisfied that it could done in a way that was not adverse to Enron's interests. Again, my unusual and more than reasonable accommodations to solve a problem of Blakes own making were not apparently satisfactory, as after the Blakes internal management call, I was advised late that next morning by Dan that: (a) Blakes had decided that, regardless of our wishes, the file must be transferred to another firm ASAP, such that, although Blakes would assist in the transition and the pending cross examination of Jon MacKay and Seabron Adamson, Blakes would have no involvement in the briefs to be filed nor in appearing at the injunction application, and would cease immediately to appear as solicitors of record, notwithstanding that the injunction was then for only a few business days hence under a greatly abbreviated court ordered timeline for examinations, briefs, etc.; finding and educating replacement counsel would have to be done at year end, with extraordinary demands on replacement counsel (not to mention Enron's other year end commercial business concerns, requiring better use and allocation of our resources). (b) In making its decision, Blakes had considered: - the relative complexity of the Enron vs. Westcoast work (I would have assumed Enron would have won this one.) - relative annual billings (I would have assume, and it was later confirmed to me, that Enron's annual billings were more than 2-3x Westcoast's for the past 3 years.) - relative strategic importance to Blakes (Enron is the only international, Fortune 500 firm represented by Blakes out of its Calgary office. I also would have assumed that Blakes Toronto has an interest in the deregulating Ontario power markets, in which Enron expects to be a market leader. I also would have assumed that Blakes would have appreciated the increased profile that Enron has given it in the pulp and paper industry, the gas industry, the power industry, the insolvency industry, the derivatives and commodity trading markets, and in other jurisdictions such as in the Province of Quebec, in the Province of British Columbia, in Houston and with other counsel which historically act for Enron.) - its policy not to sue established clients (Although admirable and a policy with which I agree, I assume it was weighed against what must also be a long standing and overriding policy of not dumping established clients, especially having regard to ethical obligations; the immediacy of the matter; the time of year; the business rather than legal conflict; Enron's more than reasonable offers to move the file ASAP under its own control but even prior to the injunction application; the various misdirections and excuses; the fact that Blakes, and particularly the Westcoast responsible partner, knew or ought to have known of the conflict for approx. 9 weeks; and, most importantly, that Blakes problem was one of its own internal making. Simply put, Blakes did not have the luxury of strictly relying on such a lofty principle in the circumstances.) (c) The arrangement had been pre-approved by Westcoast. In other words, not only did Enron not have a say in the matter, its litigation adversary had all the say. In short, it is difficult to conceive how on any reasonable basis Blakes came to its decision, or decided to communicate its decision in the way it did. The situation was of Blakes making, Enron had given Blakes a reasonable way out, and, with minimal fortitude by Blakes, and commercial reasonableness and respect of Westcoast towards Blakes, the decision to act for Enron on the terms proposed by me was obvious. * * * * * * * * * Mark, I have no clue why Blakes came to the decision it did in the circumstances. Perhaps Blakes Toronto partner serviced clients are preferred? Perhaps Blakes Calgary partners do not, or do not have the ability to represent the legitimate concerns of Enron within Blakes Toronto? Perhaps the Enron relationship is not adequately valued or Blakes does not like Enron's style? Perhaps Blakes misjudged Enron's reaction relative to what would have been Westcoast's reaction in the alternative? Whatever, the decision and the approach was wholly unsatisfactory. Blakes needs to be accountable, and after-the-fact explanations, justifications, confessions, etc. are easily given, do not measure up to prior actions, and are necessarily self-serving. It is also noteworthy that Blakes decision partly resulted in an adjournment of the injunction application to Feb. 18/01 and fundamentally destroyed our opportunity to win the injunction which has since been dropped at considerable out-of-pocket cost and business prejudice to Enron. It is also noteworthy that Westcoast soon after sold out its position in NGX to OM Gruppen, and that we have dropped both NGX and OM Gruppen from the lawsuit. Mark, I have told Blakes that in these circumstances, more than explanations, excuses and promises are necessary. I also told them that we are focused on developing more external counsel relations, and since I have retained Oslers, Stikemans, and Ernst & Young on various matters with good results. I told Blakes that we certainly would not preclude using them, but that before I did so I wanted an explanation as to how these circumstances arose and how Blakes took the decision it did and communicated it the way it did. I also told Blakes that the quality and staffing of their work had been slipping for some time, and that I would want a renewed commitment to staffing files with quality lawyers who are responsible for the working relationships. If you want to discuss the matter in advance of your meeting, please let me know. Peter.