NEWS MEDIA UPDATE · NEW YORK · Confidentiality/Privilege · April 27, 2006
Reporter’s shield overcome against energy newsletters
April 27, 2006 · Data supplied by energy companies to two publishers of energy industry newsletters which was allegedly used to illegally raise natural gas prices must be turned over to natural gas futures traders, the U.S. District Court in Manhattan ruled last week, expanding a November order of a magistrate judge.
The futures traders, who trade natural gas futures contracts on the New York Mercantile Exchange (NYMEX), are suing 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 trade to rig natural gas futures contracts for their own benefit. As part of the lawsuit, the traders asked the court to compel 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, to reveal data they used in reporting prices and indices for natural gas.
The publishers, citing reporter’s privilege, asked the court to quash subpoenas for the information. In November, Magistrate Judge Andrew J. Peck issued a limited discovery order against the publishers, allowing the traders access to information regarding the Henry hub, a pipeline in Erath, La., on which NYMEX prices are partially based.
The publishers asked the court to set aside Peck’s order “to compel production of reported trade data for locations other than the Henry Hub.” U.S. District Judge Victor Marrero agreed with Peck, ruling that the energy newsletters qualified for the reporter’s privilege, but he found that the privilege did not apply in this case. Using additional information supplied by the futures traders, Marrero expanded the scope of the information the newsletters are required to turn over to plaintiffs.
“Plaintiffs supplemental materials include expert reports that purport to demonstrate that published price indices for trades at locations other than the Henry Hub are closely correlated and related to prices of NYMEX natural gas futures contracts,” Marrero wrote.
Marrero applied the qualified reporter’s privilege of the Second Circuit, which covers Connecticut, New York and Vermont, and states the privilege may be overcome only if the information sought is highly relevant, necessary for the claim, and not obtainable for alternate sources.
He found that the information is relevant because the data “will enable Plaintiffs to identify the alleged false reports Defendants provided to the Publications and to demonstrate that the false reports affected the published indices.” He also ruled that the data is necessary for the traders’ claim and is unobtainable from other sources.
The publishers argued that Peck had relied too much on a similar case between McGraw Hill and the Commodity Futures Trading Commission. In that case, the publishers argued that the court “considered CFTC’s status as a government enforcement agency an important factor in its consideration of whether the plaintiff had overcome the qualified reporter’s privilege,” Marrero wrote.
Marrero, however, agreed with Peck that CFTC’s status as an enforcement agency was just one factor the court used, Marrero wrote.
The court admitted its decision “substantially increases the burden imposed on the Publications,” but found that the burden was not high enough to not allow the additional discovery.
(In re Natural Gas Commodities Litigation, Media Counsel: Victor Kovner, Davis Wright Tremaine, New York, N.Y.) — CM