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IN RE NATURAL GAS COMMODITY LITIGATION

June 21, 2005.

In Re NATURAL GAS COMMODITY LITIGATION.


The opinion of the court was delivered by: ANDREW PECK, Magistrate Judge

OPINION AND ORDER

Plaintiffs, natural gas futures traders, have moved to compel the production of documents from defendants American Electric Company, Inc. ("AEP") and Aquila Merchant Services ("Aquila" or "AMS") (for purposes of this decision, collectively "defendants"). (5/2/05 Plfs. Letter Br.)*fn1 Defendants claim that these documents are privileged and that their prior production of these documents to governmental agencies has not waived this privilege, since that production was pursuant to non-waiver agreements.

For the reasons discussed below, plaintiffs' motion to compel is DENIED.

  FACTS

  The facts pertaining to the underlying action have been set forth in Judge Marrero's opinion denying defendants' motion to dismiss. See In re Natural Gas Commodity Litig., 337 F. Supp. 2d 498 (S.D.N.Y. 2004). Only those facts relevant to this motion are set forth below. AEP's Internal Investigation

  In September 2002, in response to media reports exposing the inaccurate reporting of another natural gas trading company, AEP subsidiary American Electric Power Energy Services, Inc. ("AEPES") asked all AEPES traders to certify that they had not engaged in inaccurate reporting of natural gas transactions to trade publications. (5/16/05 Routh Aff. ¶ 2.) In October 2002, AEP dismissed five traders who had been unable to certify their trading conduct, publicly reported the dismissals, and reported them to the Federal Energy Regulatory Commission ("FERC") and the Commodity Futures Trading Commission ("CFTC"). (5/16/05 Routh Aff. ¶ 2.) At a meeting a week later between FERC, CFTC (collectively "the governmental agencies") and AEP outside counsel Stephen Routh from Hogan & Hartson, the governmental agencies said that "AEP would have to conduct an internal investigation of the circumstances surrounding inaccurate reporting and provide the agencies with a report of that investigation before the agencies would resolve claims regarding the conduct of the AEPES traders through settlement, as opposed to through litigation." (Id. ¶ 3.) Hogan & Hartson retained an outside consultant, Cornerstone Research, to aid in the internal investigation. (5/16/05 AEP Letter Br. at 7.)

  The internal investigation involved comparison/analysis of two different types of data, both of which have been produced to plaintiffs in this litigation. (5/16/05 Routh Aff. ¶ 4.) The first type of data, referred to by AEP as "spreadsheet data," contained information "in a form consistent with data transmitted by natural gas traders to trade publications," reflecting daily high, low and average prices from different trading hubs or reflecting monthly trade-by-trade price and volume information for each trading hub. (Id.) While the data in these spreadsheets was in the form generally used to transmit data to the trade publications, AEP does not know whether these spreadsheets were in fact transmitted to the trade publications because the trader responsible for doing so was one of the dismissed traders. (Id.) The second type of data, referred to by AEP as "system data," was from AEP's database of "trades actually made by traders on behalf of AEP." (Id.) The system data includes data for all trades made by AEP, including "physical and financial natural gas trades as well as trades for other types of commodities." (Id. ¶ 7.)

  Aquila's Internal Investigation

  Aquila's outside counsel Orrick, Herrington & Sutcliffe conducted a similar internal investigation. (5/2/05 Plfs. Letter Br. Ex. E: 7/14/03 Orrick, Herrington Letter to CFTC.) Orrick, Herrington hired the forensic accounting firm Kroll Zolfo Cooper LLC ("Kroll") to assist in the analysis. (Id.; see also Dkt. No. 279: Deacon 5/26/05 Aff. ¶¶ 1-2.) Kroll conducted an analysis comparing "trade data recorded internally by AMS to available trade data that AMS employees sent or may have sent to natural gas trade publications." (Deacon Aff. ¶ 2.) This analysis, finalized in a Kroll Report, compared

 
certain spreadsheets containing reported trading data for certain months with corresponding data recorded in AMS's internal Gas Works system. Kroll analyzed all of the trades contained on these spreadsheets and did not selectively analyze any specific individual reported trades. Kroll's analysis was limited to a review of the data contained in these documentary sources, and was not based on witness interviews or other non-documentary sources.
(Deacon Aff. ¶ 3.) One type of data Kroll analyzed were spreadsheets that apparently were reported to trade publications, which spreadsheets were made available to plaintiffs in this case in October 2004. (Id. ¶ 4.) A second type of data Kroll analyzed were spreadsheets containing similar trade data presumed to have been reported to the trade publications, and produced to plaintiffs in this litigation in October 2004. (Id. ¶ 5.) The third type of data which AMS located but was not used in the Kroll Report were draft spreadsheets, which AMS produced to plaintiffs as well. (Id. ¶ 6.) Finally, AMS produced to plaintiffs the recorded trading data from its internal Gas Works system that was analyzed in the Kroll Report. (Id. ¶ 7.)

  The Non-Waiver Agreements

  AEP

  In February 2003, in connection with ongoing settlement discussions between the CFTC and AEP, the CFTC requested review of a draft AEP attorney-client memorandum that "in part summarized certain data analyses undertaken by and at the direction of AEP's outside legal counsel, including" Routh. (Routh Aff. ¶ 11.) Before producing this information to the CFTC, Routh secured the CFTC's agreement that it would keep the information confidential, that it would not consider it a waiver of privilege "with respect to any information beyond what was specifically set forth in the memorandum," and that the CFTC would not disclose information to anyone else. (Id. ¶ 12.) Routh memorialized that agreement in a letter dated February 24, 2003 (id.), which stated:
We are providing the enclosed Memorandum in reliance on the Division's agreement that, in deference to our concerns regarding preservation of privilege set forth below, the Division will return the Memorandum to us at our meeting scheduled for February 27, 2003 and not retain any copy.
We submit this Memorandum as a selective and limited disclosure of a confidential and privileged attorney-client communication and of attorney work product solely for the purpose of exploring and negotiating a possible settlement and resolution of the Division's investigation as to AEPES. We intend that its privileged character be preserved. As to the Division Staff, no waiver of privilege is intended beyond the specific statements contained in the Memorandum (there is no general waiver of privilege to the subject matters discussed in the Memorandum or of any underlying information or analyses referenced in the Memorandum). As to third parties, there is no waiver of privilege at all; the information in the Memorandum is disclosed for the Division's Staff alone in furtherance of our settlement discussions and the resolution of the investigation as to AEPES.
(Routh Aff. Ex. 1:2/24/03 Letter from Routh to CFTC.)*fn2

  In April 2003, attorneys for FERC and the DOJ requested that AEP's counsel provide them with the same attorney-client memorandum and appendices that AEP had given the CFTC. (Routh Aff. ¶ 13.) The governmental agencies also requested "back-up information" for and additional information on "the data ...


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