Message-ID: <26119560.1075853269875.JavaMail.evans@thyme> Date: Sun, 21 Jan 2001 02:23:00 -0800 (PST) From: richard.sanders@enron.com To: richard.sanders@enron.com Subject: NGX Litigation and Outside Counsel Mime-Version: 1.0 Content-Type: text/plain; charset=us-ascii Content-Transfer-Encoding: 7bit X-From: Richard B Sanders X-To: Richard B Sanders X-cc: X-bcc: X-Folder: \Richard_Sanders_Oct2001\Notes Folders\Sent X-Origin: Sanders-R X-FileName: rsanders.nsf ----- Forwarded by Richard B Sanders/HOU/ECT on 01/21/2001 10:27 AM ----- Peter Keohane 12/19/2000 10:09 PM To: James Derrick/Corp/Enron@ENRON cc: Mark E Haedicke/HOU/ECT@ECT, Richard B Sanders/HOU/ECT@ECT Subject: NGX Litigation and Outside Counsel Jim (and Richard) my apologies. In the pace of the year-end I forgot to inform you of a piece of litigation commenced by Enron Canada. The litigation is against NGX Canada Inc. and Canadian Enerdata, and their shareholders, Westcoast Energy and OM Groupen for NGX, and Richard Zarzeczny for Canadian Enerdata. It is somewhat complicated. In brief, NGX operates an electronic natural gas trading brokerage which suffered competitively after the onset of Enron Online, and Enerdata publishes the only available and reliable natural gas indices for our market. Traditionally the indices were based upon a comprehensive survey of fixed-price physical gas transactions over the broad market. Presumably to coerce business onto the NGX system, and with two days' notice, NGX purchased the right to calculate the indices (as opposed to Enerdata itself or the publication itself) and changed the methodology for the indices to include only trades completed on NGX's system. The result is the indices are, for contractual purposes, quite cleverly unchanged and therefore still as described in hundreds of our trading contracts and thousands of transactions, but in substance have been changed to represent only NGX's segment of the market, which introduces unmanageable volatility and unreliability, and is affected by other limitations such as the ability to trade with NGX for a variety of reasons, including credit restrictions or electronic failure. [ex. We have contracts to buy and sell Coke, somebody bought the formula for Coke, changed it to Sprite, put the Sprite in the Coke can, such that we are now forced to buy and sell Sprite under the auspices of contracts to buy and sell Coke.] In any event, no commercial alternative was viable, and we decided to commence a law suit based upon interference with economic relations, interference with contractual relations, breach of obligations of good faith, civil conspiracy and passing off. All are viable claims but difficult to prove. We have to get past simply being outsmarted. We have also decided not to involve regulators or antitrust enforcement. The discovery process will be key, and we hope to influence a commercial result that includes all electronic trading systems, including Enron Online, into the indices. The lawsuit is for injunctive relief (which will be particularly difficult) and damages of C$100MM. We hope to garner industry support, but to date and as usual, many parties agree with our position but are not willing to get involved. Some competitors are also happy to segregate Enron Online from the rest of the market. In terms of counsel, we initially were going to use Robert Anderson of Blake Cassels & Graydon, who we have used on many matters, but Blakes was conflicted after the injunction papers were served. We had to find replacement counsel on short notice and, with the recommendation of Blakes but based primarily on my prior experiences, retained Clarke Hunter of Macleod Dixon. My apologies for not letting you know sooner. I had discussed the matter with Mark before commencing the suit, and Mark asked me to drop you and Richard a line, but I simply forgot. If you have any questions or concerns, please call at 403.974.6923. If I don't hear from you, all the best for the holidays. Peter.