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Court rules reporter's shield applies to energy newsletters

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NEWS MEDIA UPDATE   ·   NEW YORK   ·   Confidentiality/Privilege   ·   Nov. 17, 2005

Court rules reporter’s shield applies to energy newsletters

  • Reporter’s privilege will apply to financial newsletters, although prosecutors overcame the privilege for certain information, a federal judge ruled in a case involving natural gas commodities litigation.

Nov. 17, 2005  ·   A U.S. District Court judge in New York City limited a discovery order against two publishers of energy industry newsletters ruling Monday that the newsletters qualified for the reporter’s privilege. However, the court compelled the publishers to turn over to the court certain information which does not qualify for the privilege.

The ruling by Chief Magistrate Judge Andrew J. Peck comes nearly one year after the court quashed subpoenas to the two publishers, ruling that the plaintiffs must seek the information from other sources before using the media. In applying the reporter’s privilege to the case in Monday’s decision, Peck ruled that some of the information is available only from the publishers and no other source and therefore must be revealed.

The plaintiffs, traders of natural gas futures contracts on the New York Mercantile Exchange (NYMEX), sued numerous energy companies under the Commodity Exchange Act, alleging that from Jan. 1, 2000, to Dec. 31, 2002, the companies falsely reported data regarding natural gas trades and in doing so were able to rig natural gas futures contract prices for their own benefit.

Late last year, the plaintiffs and defendants both subpoenaed two publishers: Platts, a division of McGraw-Hill which publishes Inside FERC’s Gas Market Report and Gas Daily, and Intelligence Press, which publishes indices of the gas futures market. Earlier this year, the court quashed the motions.

On June 14, the plaintiffs returned with a subpoena asking for all “data used for constructing your published prices and indices for natural gas” during the three-year period. In August, the defendants filed a broader subpoena seeking all data submitted by them to the publishers.

Peck relied in part on recent decisions surrounding Platts — including an October District of Columbia ruling involving McGraw-Hill — and found the reporters privilege applies to the financial newsletters.

The court paid particular attention to the fact that the defendants also were looking for the information. Since there were numerous energy companies which submitted the information separately to the publishers, they also needed the information for their defense. The court, ignoring the fact that the publishers, not the sources, own the privilege, ruled that the “defendants’ concession that they are waiving their source confidentiality protection significantly weakens the Publications’s argument.”

Peck applied the Second Circuit’s three-part test required to overcome the privilege: that the information requested is highly material and relevant, necessary or critical to the claim, and unobtainable from other available sources.

The court found the information needed by the parties was material and relevant to the case and quoted last month’s McGraw-Hill decision, stating “Platts’ formulas are crucial for determining whether Energy Company’s false reporting did, or could have, had an effect on prices.”

However, the court ruled that since “NYMEX futures contracts are for future delivery of natural gas at the Henry [delivery] hub only” that the subpoenas would be limited solely to information regarding the Henry hub, a pipeline in Erath, La., on which NYMEX prices are partially based.

The court found the material sought was necessary and critical to the case. Although another method could have been used by the plaintiff to determine the prices, the court found that this alternative was “not as good” and thus “obtaining the reported trade information from the Publications is sufficiently ‘necessary’ to satisfy” the standard, Peck wrote.

Finally, the court found that the information was unavailable from other sources. It stated that the information needs to be obtainable from available sources, “it does not require that every theoretical source be exhausted.”

In addition, the court noted the publishers “innocent and unwitting involvement in the defendants’ scheme, the class action nature of the case, the defendants’ waiver of their ‘source’ privilege, and the fact that the information involved is purely numeric (price) information and of an outdated, historical nature, all make it more appropriate than it might be in other cases for the subpoenas to the Publications to be enforced.”

Peck’s order exempted Gas Daily from the subpoenas because it had discarded all of its trade data before November 2002. Since the relevant information would only cover two months, the court found the Gas Daily information would not be helpful. However, Inside FERC and Intelligence Press must still provide the information regarding the Henry hub to the parties.

(In re Natural Gas Commodity Litigation, Media Counsel: Victor Kovner, Davis Wright Tremaine, New York, N.Y.)CM

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