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Coastal, El Paso Charged in $7.5 Billion Suit

Coastal, El Paso Charged in $7.5 Billion Suit

Arguments opened last week in a $7.5 billion lawsuit brought by TransAmerican Natural Gas Corp. and its founder, Jack Stanley, accusing Coastal Corp. and its founder Oscar Wyatt Jr., El Paso Natural Gas, and William Wise, CEO of parent El Paso Energy, of various illegal acts aimed at financially undermining TransAmerican.

TransAmerican's suit accuses the defendants of fraud, tortuous interference, antitrust violations and conspiracy. The company claims the acts were carried out as part of an "Armageddon strategy" developed by the defendants with the help of then-current and former employees of TransAmerican. The trial, which is expected to take about three weeks, is being heard by a jury in the 101st State District Court in Dallas. Last Thursday, two days after it opened, the judge clamped a gag order on participants, ruling out any further comments while the trial goes on. Prior to the gag order, however, TransAmerican, through an independent public relations firm, released extensive background to the news media about the case, which was initiated in 1993.

TransAmerican claims the defendants met and drew up the strategy on a flip chart listing financial attack measures that could be directed at the company, which was then in bankruptcy reorganization proceedings. A lead item in this strategy was to undermine TransAmerican's ability to continue prosecuting and collecting a $500 million take-or-pay judgment it had won against El Paso in 1988, the lawsuit claims. El Paso settled the judgment in 1989 for $300 million.

The defendants also are alleged to have planned measures to prevent TransAmerican from refinancing and paying off outstanding debt and completing its reorganization plan; to obtain ownership or control of TransAmerican's outstanding indebtedness to its secured lenders; acquire valuable mineral leases owned by TransAmerican, or cause TransAmerican to lose title to those leases; acquire ownership and control of TransAmerican Refining Co., and prevent the company from bringing its Louisiana refinery on line; acquire ownership interest or control over litigation claims against TransAmerican; and precipitate defaults under existing contracts.

TransAmerican claims to have documented evidence and testimony from some participants at the alleged meeting outlining the strategy. Two former TransAmerican employees and an outside attorney, who allegedly were involved in the planning, have settled with TransAmerican.

The lawsuit has been billed by some as the latest battle in a long-running feud between two giants of the early development of the Texas oil and gas industry, Wyatt and Stanley. While Wyatt's Coastal Corp. is currently being sold to El Paso for $17.5 billion Stanley's ventures have suffered repeated financial setbacks on a large scale.

If the trial results in a conviction and damage award --- and Texas juries are known for large awards --- it could affect the financial underpinnings of the sale of Coastal to El Paso Energy. A spokesman for El Paso said last week the case involved "a very old issue that has been settled for a long time." The company had no comment on whether the merger agreement provided for the outcome of the trial.

Ellen Beswick

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