Subject: Base Metals v. OJSC
From: [email-masked]
To: [email-masked]
Cc: [email-masked], [email-masked]
Date: Tue, 19 Sep 2000 07:20:00 -0700 (PDT)

Richard,

I have just received and reviewed the pleadings file from our local counsel 
and need to amend my previous e-mail.  On June 29 (rather than June 26), Base 
Metals obtained its ex parte attachment order.  Apologies for any confusion.

Britt

----- Forwarded by Britt Davis/Corp/Enron on 09/19/2000 02:16 PM -----

	Britt Davis
	09/19/2000 10:56 AM
		 
		 To: Richard B Sanders/HOU/ECT@ECT
		 cc: Marcus Nettelton/NA/Enron@ENRON, Martin Stanley@MGLTD, 
[email-masked], Deborah Shahmoradi/NA/Enron@Enron, Becky 
Zikes/Corp/Enron@ENRON, Charles Cheek/Corp/Enron@ENRON, [email-masked]
		 Subject: Base Metals v. OJSC

PRIVILEGED AND CONFIDENTIAL:  ATTORNEY-CLIENT COMMUNICATION, ATTORNEY WORK 
PRODUCT

Richard,

This is to acknowledge receipt of and thank you for the above-referenced new 
matter, which concerns a third-party attachment of a load of aluminum worth 
about $6 million and owned by MG Metals.  I read the file you gave me and 
have spoken with Arthur Taylor, the in-house attorney for MG USA who was 
monitoring this file, Tim Mullin and Scott Haiber, our outside counsel at 
Miles & Stockbridge in Baltimore, and Martin Stanley, the London trader whose 
deal this was.  I will shortly be receiving a complete copy of Miles & 
Stockbridge's correspondence and pleading files.  You have already sent to me 
various e-mails in this matter, which I understand that Martin had forwarded 
to you.

      FACTS AND STATUS

Briefly stated, the significant facts are as follows.  On June 26, Base 
Metals obtained an ex parte attachment order from the U.S. District Court for 
the District of Maryland, Northern Division, for a cargo of aluminum 
previously purchased by MG Metals from a third party and being discharged in 
the Port of Baltimore.  Base Metals contends that the attachment was required 
because (a) the aluminum was actually still owned by OJSC, a Russian smelter 
and the only named defendant in the underlying suit, or (b), that the 
aluminum had been fraudulently conveyed to MG Metals.  However, MG Metals has 
never been listed as a defendant in the case.  The aluminum was in fact 
attached by Base Metals, per the order. 

The underlying lawsuit by Base Metals, a trading company, against OJSC, the 
Russian smelter, seeks to confirm an international arbitration award obtained 
in Moscow late last year of approximately $12,000,000. That arbitration 
reportedly arose out of the breach by OJSC of a long term output contract 
between OJSC and Base Metals, pursuant to which Base Metals apparently had 
the right to market most or all the production from OJSC.   That breach has 
reportedly put Base Metals virtually out of business.  OJSC has reportedly 
very recently been served by Base Metals with the Maryland federal lawsuit, 
but has not appeared.  

On July 7, the Court granted MG Metal's emergency motion to allow the sale of 
the aluminum, provided that the sale proceeds were placed into an interest 
bearing escrow account.  Reportedly, all the previously-attached aluminum has 
been sold, and approximately $2.5 million of sales proceeds have been 
deposited into the escrow account. Additional sale proceeds are anticipated 
to be deposited in the near future, with the total running in the range of 
about $5.5-6 million.

On July 20, MG Metals served a motion to vacate the order establishing the 
escrow account, and a request for an expedited hearing.  The first reason set 
forth in the motion is that Base Metals could not prove that OJSC owned the 
metal, given that  MG Metals is shown as the shipper on the relevant straight 
bills of lading, has all the necessary purchase and sale documents from an 
intermediate buyer, and has reportedly paid fair market value to that 
intermediate buyer for the aluminum.  The second reason is that MG Metals' 
solvency obviates the need for an escrow account. 

 Base Metals has filed a response, with supporting affidavits, contending 
that the aluminum was fraudulently transferred to MG Metals,and that MG 
Metals was actually aware of this.  This awareness allegedly arose at least 
in part as the result of a warning from a representative of Base Metals to a 
representative of MG Metals about the takeover of the Russian smelter through 
a corruption of the Russian bankruptcy process by Russian competitors in the 
metals business. 
For strategy reasons, even though MG Metals advises that this conversation 
never took place and that  all it was aware of were rumours that frequently 
come out of Russia, MG Metals has not chosen to file affidavits controverting 
its alleged knowledge.  This is because Base Metal's lead law firm in 
Philadelphia is composed primarily of Russian immigrants and appears to be 
tied to a law firm located in Russia.  Clearly Base Metals is better prepared 
than us to obtain information from Russia.  For that reason, we are trying to 
keep turning this case into a swearing match about what MG Metals knew was 
happening in Russia by focusing on other arguments, such as the solvency 
argument.

Along these lines, MG Metals will also shortly file a supplemental pleading 
arguing that Base Metals failed to effect service on OJSC within the 60-day 
time period allowed under the applicable Maryland attachment procedure, 
voiding the attachment.  The service issue is not as strong as the solvency 
argument,  as there is no Maryland law that holds that the failure to serve 
process within the 60-day period on the defendant in the underlying suit is 
in fact lethal to an attachment related to that suit.  Based on the solvency 
argument, Miles and  Stockbridge believe that MG Metals has a better than 
even chance of prevailing on its motion to vacate the escrow account.   

The Court's ruling on the attachment issue is obviously pivotal to us in this 
matter.  I will report immediately once the Court rules.

Parenthetically, Mark Gately, the Miles & Stockbridge partner originally on 
this file, has left that firm for the Baltimore office of Hogan & Hartson.  
Martin has asked that the file stay with Miles & Stockbridge (the partner in 
charge will now be Tim Mullen), and that Mark, who signed all the pleadings 
and attended all the hearings to date as MG's first chair attorney, be used 
as necessary, but that we not be charged for two law firms. In speaking with 
Tim Mullin, the partner in charge now at Miles & Stockbridge, I am not sure 
that he is aware of the last caveat re not being charged for two law firms, 
although he mentioned that he would recommend that Mark be involved for no 
more than one more hearing, after which his presence would not be necessary.

You should also be aware that Base Metals has filed proceedings to confirm 
the arbitration award and attach aluminum from OJSC elsewhere in the U.S.  
The aluminum involved in the other proceedings is not owned by MG Metals.  
According to Martin, Base Metals (being virtually out of business) does not 
have a lot of money to pursue litigation.

I would be grateful if Martin and/or Arthur would correct me if any of the 
foregoing is in error.  

With regard to further reporting, I understand that I am to keep you, Marcus 
and Martin closely advised.  I am awaiting confirmation from Arthur that he 
is agreeable to transitioning out of the file, under which circumstances he 
will not be included in any future reports (and Arthur, if my understanding 
is incorrect, just let me know).

Britt