El Paso Corp. on Friday agreed to pay $16.8 million to settle a shareholder lawsuit filed in August 2001 that claimed some of the El Paso's officers and directors breached their fiduciary duties in managing the company's California operations.
In a 14-page Securities and Exchange Commission Form 8-K filing, El Paso said the settlement would be paid by insurers under its directors and officers liability insurance that is used to pay legal costs. The lawsuit originally was filed five years ago in U.S. District Court of Harris County, TX (No. 2002-13602) against El Paso's then-officers and directors, including former CEO William Wise, and it has been amended several times since.
According to the filing, the complaint alleged the defendants, including El Paso's then-senior officers and directors, breached their fiduciary duties in managing and in oversight of El Paso's energy business in California. More specifically, the plaintiffs alleged the defendants "caused or allowed El Paso to engage in certain improper activities with respect to the delivery of natural gas and power to California during the 1999-2001 time frame."
The lawsuit claimed some of the defendants "knowingly" participated in, approved or acquiesced "in conduct that constituted affiliate abuse and abuse of market power in California," and awarded "incentive bonuses" to defendants Wise, Ralph Eads and John Somerhalder based on El Paso's performance in fiscal year 2001. Wise resigned in 2002, Eads presided over El Paso's unregulated merchant operations until December 2002, and Somerhalder once headed the pipeline group.
"Wise, Eads and Somerhalder were unjustly enriched in fiscal year 2001 as a result of the allegedly improper conduct in California," and "certain" of the defendants approved "certain 'Global Networks transactions," which also enriched the trio, the lawsuit claimed. An amended petition also claimed some of El Paso's officers engaged in improper "wash trades," or "round-trip trades," improperly accounted for oil and gas reserves, accounted improperly for some long-term hedging transactions and restructured certain energy contracts and improperly moved debt related to those contracts off El Paso's balance sheet.
The settlement is scheduled to be heard in U.S. District Court in Houston on June 26.
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