A federal judge in Washington DC has ordered the Commodity Futures Trading Commission (CFTC) to turn over to E.& J. Gallo Winery documents obtained during an investigation into the natural gas trading activities of WD Energy Services Inc. for use in Gallo's lawsuit against the now-defunct U.S.-based energy trading unit of EnCana Corp.
The CFTC probe of WD Energy was resolved in July 2003, when the company -- without admitting any wrongdoing -- agreed to pay a civil penalty of $20 million. A few months earlier, Gallo, a wine producer and one of the largest gas consumers in California, brought a lawsuit against Encana Energy Services Inc. and Encana Corp. seeking damages for the company's alleged manipulation of gas prices in California through sham trades, false reporting of trade information and other misconduct.
In October 2004, Gallo subpoenaed all the documents that the CFTC had collected from WD Energy and nine other energy companies in the course of the agency's energy trading investigations. The CFTC notified the energy companies of the subpoena, and they contested it on several grounds, including that the requested documents were protected by investigative privilege.
Specifically, WD Energy asked the U.S. District Court for the District of Columbia to bind the CFTC to a decision on the issue of settlement privilege, preventing the agency from disclosing documents in response to an otherwise valid subpoena.
"To be sure, WD Energy makes a forceful rhetorical argument that a settlement privilege is necessary to preserve the strong public interest in the settlement of dispute, but a compelling argument has been made for the contrary position [Gallo] as well," said U.S. District Judge John D. Bates.
"Accordingly, the court declines plaintiffs' invitation to recognize settlement privilege, and will order the CFTC to produce the WD Energy documents at issue to Gallo."
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