ONEOK Inc. reported Friday that U.S. District Judge Roslyn O. Silver in Phoenix dismissed two major claims brought by Southern Union Co. that stemmed from ONEOK’s failed merger with Southwest Gas Corp. The judge earlier had rejected Southern Union’s charges that ONEOK had violated federal and Arizona racketeering laws.

“We are pleased the court has dismissed all but one of Southern Union’s claims against the company,” said a top ONEOK official. “We plan to file a motion for summary judgment on that claim and are hopeful it will be granted.”

In an order handed down on June 21, ONEOK said Judge Silver dismissed with prejudice Southern Union’s claim that ONEOK conspired with Southwest Gas and others to fraudulently induce Southern Union to enter into a confidentiality and standstill agreement with Southwest Gas. The judge also dismissed Southern Union’s claim that ONEOK “tortuously interfered” with the alleged rights of Southern Union under that agreement.

Southern Union’s remaining claim against ONEOK is that the company “tortuously interfered” with Southern Union’s alleged prospective business relationship with Southwest Gas. ONEOK said it believes its forthcoming motion for summary judgment on that claim should be granted.

But ONEOK was not the only company claiming a win on Friday. According to Southern Union, Judge Silver denied Southwest Gas’s and ONEOK’s motions to dismiss Southern Union’s federal claims against them.

“We are delighted with the court’s decision. It clears the way for Southern Union’s case to proceed to trial in November of this year,” said George E. Yankowski, Southern Union’s treasurer.

Southwest had moved to dismiss Southern Union’s claims for fraudulent inducement and bad faith breach of contract. The court rejected Southwest’s position that it was not obligated to act in good faith in its evaluation of Southern Union’s offer to acquire Southwest Gas. “This ruling affirms what Southern Union has claimed all along: Southwest was required to fully and fairly evaluate Southern Union’s higher offer to purchase Southwest,” said Yankowski.

The court also denied motions to dismiss by Arizona Corporation Commissioner James Irvin and former ACC Executive Secretary Jack Rose, Southern Union said. Judge Silver found that public officials are not immunized from liability if they have “lied to and defrauded regulatory officials” or if they engage in “unlawful conduct.”

The litigation all started after ONEOK entered into a merger agreement with Southwest Gas in December 1998. In February 1999, Southern Union made an unsolicited proposal to merge with Southwest Gas that was later rejected (see NGI, March 1, 1999). ONEOK said litigation ensued in which each of the three corporations asserted claims against the other two. ONEOK is asserting a claim against Southern Union for interfering with ONEOK’s merger agreement with Southwest Gas. ONEOK said it terminated its merger agreement with Southwest Gas on Jan.21, 2000 because of Southern Union’s pending claims against Southwest Gas.

Southern Union reportedly alleges that Southwest Gas fraudulently induced Southern Union to enter into a confidentiality and standstill agreement that prevented Southern Union from taking its merger proposal directly to the shareholders of Southwest Gas.

ONEOK asserts it properly terminated the merger and that Southwest Gas fraudulently induced ONEOK to enter into an amended merger agreement.

In response, Southwest Gas has reportedly asserted a claim against Southern Union for interfering with the ONEOK/Southwest Gas merger agreement and also alleges that ONEOK breached and committed fraud with respect to the ONEOK/Southwest Gas merger agreement. ONEOK said it denies these claims.

In May, Judge Silver issued an order dismissing federal and state RICO claims made by Southern Union Co. against Southwest Gas Corp. (see NGI, May 28). Trial for all the remaining cases is scheduled to begin in the federal district court in Phoenix on Nov.12.

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