FW: FW: Gas Storage Agreement with Duke Energy Field Services Joe, I spoke with Centana's attorney. According to him, they are not opposed to the escrow account, just the hassle of paper work, but he is checking with his commercial person and will get back to me today. I told him ENA wants to do the deal, ENA is willing to open the escrow account, but that's the deal. So I expect to hear from him shortly. Attached is the email from Centana's attorney. At the very beginning of Mike Richards' email he lists all of his claims. -----Original Message----- From: Nemec, Gerald [mailto:Gerald.Nemec@ENRON.com] Sent: Tuesday, February 19, 2002 12:32 PM To: Proctor, Shemin V.; Mann, Kay Cc: mark.ellenberg@cwt.com Subject: FW: FW: Gas Storage Agreement with Duke Energy Field Services Kay,  Mark is aware of this transaction.  The following is his response to Centana's counsel email.  I did discuss with Mark this morning, the current course we are following with Centana and he agreed it made sense.   As it stands now we would sell all the gas in-place to Centana and they would net out post-petition fees.  Our business people feel that we have used the storage services post-petition and consequently those fees would be an administrative expense.  An amount equivalent to the pre-petition fees would be held in escrow until the bankrutpcy court resolved the pre-petition amounts.   All remaining amounts would be delivered to Enron North America.   >  -----Original Message----- > From: 	"Mark Ellenberg" @ENRON   > Sent:	Friday, February 15, 2002 8:22 AM > To:	Nemec, Gerald > Cc:	melanie.gray@weil.com; david.wolnerman@weil.com; Mann, Kay > Subject:	Re: FW: Gas Storage Agreement with Duke Energy Field Services >  >  > He is wrong on just about every point.  In the few instances where he has > stated correct legal principles, he has misapplied them. >  >    the bankruptcy code expressly cuts off interest on unsecured claims as >    of the petition date. >    refusing to act under the contract unless prepetition debt is paid is a >    violation of the automatic stay.  in this regard, it should be noted >    that obligations maturing postpetition are still prepetition debts to >    the extent they arise from a prepetition contract, such as here. >    both set off and recoupment require that there be a debt owed to the >    debtor by the counterparty and a debt owed by the debtor to the >    counterparty.  here, the unstated premise of centana's position is that >    centana's obligation to return gas is a debt owed by it to to enron. >    this is wrong.  centana is merely a bailee of the gas and its return >    obligation is not a debt.  this is clearly established in the cotton >    warehouse cases i have previously sent you the cites for. >    section 365(d)(3), on its face, only applies to leases of nonresidential >    real property.  a gas storage agreement is obviously not such a lease. >    the court has already ruled that enron deserves time to determine >    whether to assume or reject executory contracts.  in addition, the court >    has ruled that parties to executory contracts are not entitled to relief >    from the stay or adequate protection. >    centana should be placed on notice that they are violating the stay by >    demanding prepetition debt and by refusing to turn over property of the >    estate.  this exposes them to a contempt citation and damages.  we >    should thank them for providing a smoking gun in the form of richard's >    e-mail.  in addition, they are in breach of contract for refusing to >    comply with enron's withdrawal requests.  this exposes them to breach of >    contract damages claims based on the decline in the value of gas. >    they are entitled to be paid as an administrative expense for storage >    charges based on storage actually used since december 2. >  > you should be aware that we resolved a similar standoff with ngpl by > agreeing to immediately reject storage contracts and paying post-petition > administrative storage charges if they cooperated in the sale of gas to a > third party via in-ground transfer.  maybe that would work here. >  >  >  >                     "Nemec, >                     Gerald"               To: mark.ellenberg@cwt.com >                                          ENRON.com>            Subject:     FW: Gas Storage >                     Office:               Agreement with Duke Energy Field >                                           Services >                     02/14/02 05:26 >                     PM >  >  >  >  >  >  > Mark,  Attached is the authority under which Centana is holding portions of>  > our gas in storage.  I will forward a copy of the storage agreement also. >  > >  -----Original Message----- > > From:         "Michael S. Richards" @ENRON > > Sent:         Wednesday, February 13, 2002 11:33 AM > > To:           Nemec, Gerald > > Cc:           Greg A. Swidensky > > Subject:           Gas Storage Agreement with Duke Energy Field Services > > Importance:        High > > > > Gerald, this e-mail will serve as a follow-up to our telephone > conversation > > from the other day.  There are a number of arguments we believe we have > > with respect to our entitlement to pre-bankruptcy lease payments under > our > > storage lease with Enron.    These arguments include our rights under our > > storage lease agreement, common law setoff rights, recoupment, > > rejection/assumption and adequate protection  issues.  These issues are > > briefly addressed below: > > > >    Under the terms of our September 1, 2001 Gas Storage Agreement, Enron > is > >    obligated to pay monthly interest in the amount of 1.5% for past due > >    lease obligations.  Currently, Enron is past due for both pre- and > >    post-bankruptcy lease obligations to us.  Under the terms of the > lease, > >    we are authorized to suspend withdrawals until all past due > obligations, > >    including interest, are paid. > >    We believe that under Texas law we are entitled to common law > recoupment > >    and/or setoff rights. > >    We don't know whether Enron intends to accept or reject our storage > >    lease.  If Enron rejects our 3 year lease, we calculate the rejection > >    damages for anticipatory breach to exceed $3.6 million, which is in > >    excess of the value of the gas.  Recoupment rights are generally > >    available to determine a just liability on the claim of one party > >    against another with respect to a single, indivisible contract. > >    If recoupment is not available, setoff enables us to  offset our > claims > >    under the lease against Enron's claims for the gas, subject to the > >    automatic stay,  because mutual debts may be offset against each other > >    to achieve a just result.  Official Comm. of Unsecured Creditors v. > >    Manufacturers and Traders Trust Co. (In re Bennett Funding Group), 146 > >    F.3rd 136 (2nd Cir. 1998). > >    Section 365(d)(3) of the Code requires that a debtor-in-possession > >    timely perform all of its obligations under an unexpired lease until > it > >    is assumed or rejected.  Therefore, not only rent, but also other > fees, > >    taxes, and attorneys' fees, to the extent provided for under the > lease, > >    must be paid under Section 365(d)(3).  Courts have held late charges > for > >    postpetition, pre-rejection lease payments to be obligations that must > >    be paid as administrative expense claims.  See, e.g., In re MS Freight > >    Distribution, Inc., 172 B.R. 976 (Bankr. W.D. Wash. 1994). > >    We believe that we are entitled to the setting of an early deadline by > >    the court for Enron to determine whether or not to accept or reject > this > >    contract in order to protect our recoupment/setoff rights and we > believe > >    we are entitled to relief from the automatic stay to permit the > exercise > >    of the setoff rights (if recoupment should be found not to apply). > >    Pending such determinations, we believe that we are entitled to hold > the > >    gas to preserve our recoupment/setoff rights.  See, e.g., Citizens > Bank > >    v. Strumpf, 516 U.S. 16 (1995). > > > > Our preference is to work out a deal with Enron for the purchase of this > > gas, with a credit against the purchase price for both pre- and post- > > bankruptcy lease obligations.  We believe we should seek bankruptcy court > > approval to the extent this involves pre-bankruptcy obligations. > > >  >  > **********************************************************************>  > This e-mail is the property of Enron Corp. and/or its relevant affiliate > and may contain confidential and privileged material for the sole use of > the intended recipient (s). Any review, use, distribution or disclosure by > others is strictly prohibited. If you are not the intended recipient (or > authorized to receive for the recipient), please contact the sender or > reply to Enron Corp. at enron.messaging.administration@enron.com and delete > all copies of the message. 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