PRACTICE AREA(S): General Litigation
CLIENT / INDUSTRY: National utility company
ATTORNEY(S): Mitch Blair, Jim Lang, Tracy Scott Johnson
Situation Summary:
Sometime prior to 2001, a utility decided to sell certain of its generating assets in order to raise cash to reduce debt. The utility bundled four power generating facilities for sale. The bundled facilities were shopped with various potential buyers and ultimately subjected to a competitive bid process. The high bid (approximately $1.5 billion) was submitted by a wholesale power generation company. Negotiations were entered into and definitive buy-sell agreements were executed.
Throughout the next several months, the energy market dramatically changed. The utility believed the wholesale power generation company may have overpaid for the assets based upon market conditions at the time that the deals were finalized. However, as a result of the collapse of energy prices attendant to the Enron debacle, what was a bad business deal became disastrous for the wholesale power generation company -- a company that was now no longer able to obtain the financing necessary to complete the transactions.
Calfee Approach:
Recognizing the likelihood that the power generation company would breach its obligations under the buy-sell agreements, the utility retained Calfee to represent it in connection with anticipated litigation. The buy-sell agreements contained arbitration provisions specifying a type of “baseball” arbitration between the parties. Calfee initiated actions under the arbitration provisions based on the power generation company’s anticipated breach. Calfee also worked with our client’s experts to maximize the alleged damages from the breach, despite the client’s ultimate retention of the assets at issue.
Within one year of entering into the initial buy-sell agreement, the power generation company’s parent company put it into bankruptcy (staying the arbitration proceedings). Calfee threatened possible litigation against the parent, predicated upon public statements it made regarding the solvency of the power generation company. As a part of the power generation company’s reorganization plan, the parent company agreed to make a substantial cash payment into the power generation company (increasing the value of all of its unsecured claims, including that of Calfee’s client).
Resolution:
The power generation company ultimately settled our client’s claim in bankruptcy. Calfee’s client was allowed a claim of $400 million (damages for the breach of the buy-sell agreements). Our client converted the claim to a current cash payment of nearly $200 million, which substantially improved their overall cash position. Our client also retained ownership and control of all the assets.
The results described in each case study are dependent on the specific factual and legal circumstances of the matter described, and constitute neither legal advice nor a guarantee of similar results with respect to any other matter.