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Enron Mail |
Here is another email about theTrust's damage theories about which I wrote
in an earlier email. YOu may want to print this out until you get through the 3-4 emails I"m forwarding to you about this subject. Thanks. ---------------------- Forwarded by Melanie Gray/HO/WGM/US on 01/30/2001 02:26 PM --------------------------- "Greenswag, Douglas" <douglas.greenswag@leonard.com< on 01/30/2001 08:37:29 AM cc: "Beth Nelson" <beth.nelson@leonard.com<, "Catherine Horton-Morin" <catherine.hortonmorin@leonard.com<, "Catherine McEnroe" <catherine.mcenroe@leonard.com<, "Dan Oberdorfer" <dan.oberdorfer@leonard.com<, "Eric A. Henzy Esq. (E-mail)" <ehenzy@reidandriege.com<, "James Bertrand" <james.bertrand@leonard.com<, "Noah Hall" <noah.hall@leonard.com< Subject: RE: Could this be Trust counsel's argument? ?Leonard, Street and Deinard Joint Defense Group Privileged Communication January 30, 2001 Re: Trust's Damage Theory. Dear Counsel: I think Tim is correct when he lays out the Trust's damage theory. While we should anticipate it and have a response in our brief, I suggest there are a number of flaws. 1. The damage language for Seller non-delivery expressly provides that no damages are allowed where the non-delivery was "caused" by the buyer. "Cause" is an undefined term as far as I can see. We will, of course, argue that cause necessarily includes PCA's prospective inability to perform and its actual business failure. If "cause" were limited to situations where the buyer affirmatively refuses to take the power, then a dying marketer could make millions simply by keeping its mouth shut. 2. The logical extension of the Trust's argument (that you have to run through the two step damage analysis regardless of the reasons for one party's failure to perform) is that, as noted above, a shaky marketer could time its failure in a rising market and thus assert millions in damage claims by never telling counterparties it would not accept delivery of power. 3. The Trust's argument presupposes that we had no legal right to demand adequate assurance and take steps to protect ourselves. The reference to the "exclusive" nature of the damage remedy has nothing to do with our right to demand adequate assurance. Rather, that remedy provision expresses the "exclusive" means for calculating the amount of damages in the event the seller breaches, and does not address the question of whether, in fact, the seller actually breached the contract. Regards. Douglas B. Greenswag, Esq. Leonard, Street and Deinard 150 S. Fifth Street, Suite 2300 Minneapolis, MN 55402 Phone:? (612) 335-1527 Fax:????? (612) 335-1657 Email:??? Douglas.Greenswag@leonard.com <mailto:Douglas.Greenswag@leonard.com< THIS MESSAGE IS PRIVILEGED AND CONFIDENTIAL _________________________________ NOTICE: The information contained in this electronic mail transmission is intended by Leonard, Street and Deinard for the use of the named individual or entity to which it is directed and may contain information that is privileged or otherwise confidential. It is not intended for transmission to, or receipt by, anyone other than the named addressee (or a person authorized to deliver it to the named addressee). It should not be copied or forwarded to any unauthorized persons. If you have received this electronic mail transmission in error, please delete it from your system without copying or forwarding it, and notify the sender of the error by reply email or by calling Leonard, Street and Deinard at (612) 335-1500 (collect), so that our address record can be corrected. ________________________________ -----Original Message----- From: Baird, Tim [mailto:tim.baird@troutmansanders.com] Sent: Monday, January 29, 2001 7:02 PM To: Billeck, Jason; Casher, Dick; Dweck, Jake; Fisher, Mark; Goldberg, Tom; Gray, Melanie; Greenswag, Douglas; Hedberg, Steven; Henzy, Eric; Jim Nolan; MacIntyre, Bruce; Martini, Deidre; McFarland, Mitch; Murphy, Rick; Oberdorfer, Dan; Stenglein, Mike; Steve Northup; Strasburger, John; Tim Baird; Trostle, Patrick; Turner, Paul; Zuch, Sharyn Subject: Could this be Trust counsel's argument? Troutman Sanders Mays & Valentine LLP Timothy S. Baird Phone: (804) 697-1227 Fax: (804) 697-1339 tim.baird@troutmansanders.com Joint Defense Privileged Communication Group - Paul Turner and I were discussing the following interpretation of the liquidated damages clause in PCA's confirmations, which we believe is likely going to be Trust counsel's argument in the mediation. The language of the liquidated damages provision (LD Provision), which I have simplified, is as follows: "Damages for Non-Performance (1) For this firm transaction, if the Buyer fails to schedule and/or to receive the Quantity, where such failure was not excused . . . by Seller, Buyer shall pay Seller (on the date payment would otherwise be due under this transaction) an amount for each MWh of such deficiency equaling the sum of: (i) [the contract price] minus (ii) [the market price]; provided however, if the amount determined in the preceding clause is negative, then the amount shall be equal to zero for purposes of calculating the deficiency payment. (2) For this firm transaction, if the Seller fails to schedule and/or to deliver the Quantity, where such failure was not excused . . . by Buyer, Seller shall pay Buyer (on the date payment would otherwise be due under this transaction) an amount for each MWh of such deficiency equaling the sum of: (i) [the market price] minus (ii) [the contract price]; provided however, if the amount determined in the preceding clause is negative, then the amount shall be equal to zero for purposes of calculating the deficiency payment. (3) [acknowledgement that these provisions are for liquidated damages and not a penalty] (4) [exclusive remedy provision]" To illustrate how I think that the Trust interprets this LD Provision, lets assume that PGET had a contract to sell power to PCA for delivery at Cinergy during July-August 1998 at a price of $50/MWH ("the Transaction"). Let's assume that, based on PCA's payment or delivery defaults, PGET terminates the Transaction and all other forward transactions with PCA in late June 1998. Let's assume further that the market price for power at Cinergy was $100/MWH on the date of termination (without getting into whether you look to index price of forward price). The Trust will argue that PCA failed to schedule and/or receive power from PGET under the Transaction, and therefore PCA must make "the deficiency payment" to PGET under clause (1). Under clause (1), however, this deficiency payment would be zero. The Trust will argue further that PGET also failed to schedule and/or deliver power to PCA under the Transaction, and therefore PGET must make "the deficiency payment" to PCA under clause (2). Under clause (2), PGET would have to make a deficiency payment of $50 times the Quantity. The Trust will argue further that, under the express contractual language of the LD Provision, it doesn't matter whether PCA was able to actually perform under the Transaction. The parties' intent in entering into an agreement containing the LD Provision was to require each party to pay "the deficiency amount" in the event that the Transaction is not performed. The only situation where a party would NOT have to pay "the deficiency amount" is (a) in the event of force majeure, or (b) when the other party excuses performance. PCA will argue that, regardless of whether it was in default or unable to perform, it did not excuse performance by PGET under the Transaction. The Trust will argue that this is the parties' express contract and sole remedy in the event of non-performance. Therefore, the Trust will argue, it does not matter whether PCA was able to perform the contracts. If a contract was not performed, then the damages are calculated under the LD Provision. The Trust will also argue that it does not matter whether PGET had a RIGHT to terminate the Transaction because of PCA's default. It only matters that the contract was not performed. Moreover, I am confident that this interpretation of the LD provision is the basis for the "positive difference" damages calculation that Peter keeps referring to. With regard to damages, I imagine that the Trust will argue that: (A) Under direct book-outs, performance is excused; therefore, you net the contract price of the two contracts. (B) Under all other transactions, you look solely at whether power was scheduled and/or delivered. If not, then you calculate each party's liquidated damages, with respect to each and every transaction, under clauses (1) and (2) of the LD Provision. The advantage this line of argument is obvious: (1) It is based on the express language of the confirmation statement that the Trust will contend was part of the contract; (2) It is a simple response to the inability to perform argument; and (3) It actually makes sense in the context of a commodities market. This is what we are going to hear from the Trust in their mediation submission. "'Baird, Tim'" <tim.baird@troutmansanders.com<; "Billeck, Jason" <jason.billeck@weil.com<; "Casher, Dick" <CasherRF@bingham.com<; "Dweck, Jake" <jdweck@sablaw.com<; "Fisher, Mark" <mfisher@schiffhardin.com<; "Goldberg, Tom" <tdgoldberg@dbh.com<; "Gray, Melanie" <melanie.gray@weil.com<; "Greenswag, Douglas" <douglas.greenswag@leonard.com<; "Hedberg, Steven" <HEDBS@PerkinsCoie.com<; "Henzy, Eric" <ehenzy@reidandriege.com<; "Jim Nolan" <JNolan@maysval.com<; "MacIntyre, Bruce" <macib@perkinscoie.com<; "Martini, Deidre" <d-martini@ibolaw.com<; "McFarland, Mitch" <mmcfarland@lockeliddell.com<; "Murphy, Rick" <RGMurphy@SABLAW.COM<; "Oberdorfer, Dan" <dan.oberdorfer@leonard.com<; "Stenglein, Mike" <mike.stenglein@weil.com<; "Steve Northup" <SNorthup@maysval.com<; "Strasburger, John" <john.strasburger@weil.com<; "Tim Baird" <TBaird@maysval.com<; "Trostle, Patrick" <TrostlPJ@bingham.com<; "Turner, Paul" <pturner@SABLAW.COM<; "Zuch, Sharyn" <SBZ@Wiggin.com< **********NOTE********** The information contained in this email message is intended only for use of the individual or entity named above. 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