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Enron Mail |
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
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