Opinion
Case No. 01-16034 (AJG), Jointly Administered.
July 28, 2005
TROUTMAN SANDERS LLP, Hollace T. Cohen (HC 8651), New York, NY, Attorneys for the Vanguard Group, Vanguard Short-Term Investment Grade Fund (a series of Vanguard Fixed Income Securities Funds) f/k/a Vanguard Short-Term Corporate Bond Fund; Vanguard Variable Insurance Fund — Vanguard Total Bond Market Index Portfolio (a series of Vanguard Variable Insurance Fund) f/k/a Vanguard Annuity High Grade Bond Fund; Vanguard Intermediate-Term Investment Grade Fund (a series of Vanguard Fixed Income Securities Funds) f/k/a Vanguard Intermediate-Term Corporate Fund; Vanguard Total Bond Market Index Fund) (a series of Vanguard Bond Index Funds); Vanguard Short-Term Bond Index Fund (a series of Vanguard Bond Index Funds); Vanguard Variable Insurance Fund — Short-Term Investment Grade Portfolio (a series of Vanguard Variable Insurance Fund) f/k/a Vanguard Annuity Short-Term Corporate Bond Fund; Vanguard Fiduciary Trust Company Corporate Bond Trust (f/k/a Vanguard Corporate Bond Trust Fund); Vanguard Balanced Index Fund (a series of Vanguard Balanced Index Fund).
WEIL, GOTSHAL MANGES LLP, Richard L. Levine, Martin J. Bienenstock (MB 3001), Brian S. Rosen (BR 0571), Melanie Gray, Richard L. Levine (RL 4871), New York, NY, Attorneys for Reorganized Debtors.
WHEREAS, on October 15, 2002, The Vanguard Group, Inc., on behalf of certain Vanguard mutual funds ("Vanguard"), filed (a) a proof of claim against Enron Corp. ("Enron") which was assigned Claim No. 14046 (the "Enron Proof of Claim") and (b) a proof of claim against Enron North America Corp. ("ENA," and together with Enron, the "Debtors") which was assigned Claim No. 14069 (the "ENA Proof of Claim," and together with the Enron Proof of Claim, the "Proofs of Claim").
The Vanguard Group consists of the following Vanguard mutual funds, who are holders of the Yosemite I Notes (as defined herein): Vanguard Short-Term Investment Grade Fund (a series of Vanguard Fixed Income Securities Funds) f/k/a Vanguard Short-Term Corporate Bond Fund; Vanguard Variable Insurance Fund — Vanguard Total Bond Market Index Portfolio (a series of Vanguard Variable Insurance Fund) f/k/a Vanguard Annuity High Grade Bond Fund; Vanguard Intermediate-Term Investment Grade Fund (a series of Vanguard Fixed Income Securities Funds) f/k/a Vanguard Intermediate-Term Corporate Fund; Vanguard Total Bond Market Index Fund) (a series of Vanguard Bond Index Funds); Vanguard Short-Term Bond Index Fund (a series of Vanguard Bond Index Funds); Vanguard Variable Insurance Fund — Short-Term Investment Grade Portfolio (a series of Vanguard Variable Insurance Fund) f/k/a Vanguard Annuity Short-Term Corporate Bond Fund; Vanguard Fiduciary Trust Company Corporate Bond Trust (f/k/a Vanguard Corporate Bond Trust Fund); Vanguard Balanced Index Fund (a series of Vanguard Balanced Index Fund).
WHEREAS, each of the Enron Proof of Claim and the ENA Proof of Claim asserts a liquidated claim in the amount of $12,614,624.95 (the "Liquidated Claim"), which is the amount of loss claimed by Vanguard to have been suffered in connection with the purchase and sale of $15,505,000 in principal amount of 8.25% Series 1999-A Linked Enron Obligations Due 2004 issued by Yosemite Securities Trust I (the "Yosemite Notes"); and an unliquidated claim (the "Unliquidated Claim") for alleged losses in respect of $54,875,000 in principal amount of the Yosemite Notes owned by Vanguard both on the Chapter 11 filing date of each of Enron and ENA and on the date hereof;
WHEREAS, each of the Enron Proof of Claim and ENA Proof of Claim state that Vanguard's claims arise under federal and state statutory law and common law principles, including, without limitation, under the federal securities laws, under principles of common law fraud, and under state statutes and common law principles at law and in equity;
WHEREAS, by "Debtors' Objection to Proofs of Claim Filed By The Vanguard Group, Inc., Claim Nos. 14046 and 14069", filed and served on August 4, 2004 (the "Objection"), the Debtors objected to the Proofs of Claim and sought to have the claims disallowed on the basis, inter alia, that, the Proofs of Claim (i) do not sufficiently plead a basis for recovery against Enron and ENA because the Proofs of Claim do not identify the federal or state statute or regulations upon which the Proofs of Claim are based and (ii) fail to satisfy the pleading requirements of (a) Rule 9(b) of the Federal Rules of Civil Procedure and (b) the Private Securities Litigation Reform Act (the "PSLRA");
WHEREAS, on October 25, 2004, Vanguard filed and served its "Response of the Vanguard Group in Opposition to Debtors' Objection to Proofs of Claim Nos. 14046 and 14069" (the "Vanguard Response"). In the Vanguard Response, Vanguard maintained that (a) the pleading requirements of Rule 9(b) and the PSLRA do not apply to proofs of claim, and that (b) the Vanguard Proofs of Claim are prima facie evidence of the validity and amount of the claims stated therein as provided in Bankruptcy Rule 3001(f). The Vanguard Response also set forth the federal statute and rule and the common law causes of action of the State of New York, the State of Texas and the Commonwealth of Pennsylvania on which the claims asserted in the Proofs of Claim are based;
WHEREAS, Vanguard, Enron and ENA agreed to an adjournment of the hearing on the Objection from October 28, 2004 to December 9, 2004, which set December 2, 2004 at 5:00 EST as the Debtors' time to file and serve its reply, if any, to the Vanguard Response;
WHEREAS, the Debtors did not file a reply but entered into discussions with Vanguard to resolve the issues raised in the Objection and the parties thereafter agreed to further adjournments of the hearing and now have agreed to the dismissal of the Objection with prejudice (while reserving to the extent set forth below the right of Enron and ENA to object to the Proofs of Claim when amended as provided hereby) upon the terms and conditions set forth below.
NOW, THEREFORE, the parties, by and through their counsel, have agreed as follows:
1. All capitalized terms not defined herein shall be accorded the meanings ascribed to them in the Fourth Amended Complaint (the "Complaint") filed on January 10, 2005 in the litigation styled Enron Corp. and Enron North America Corp. v. Citigroup Inc., et al., Adversary Proceeding No. 03-09266 (AJG), pending in the United States Bankruptcy Court for the Southern District of New York (the "Mega Claim Litigation").
2. Vanguard agrees to amend the Proofs of Claim and to set forth in an Amended Enron Proof of Claim and an Amended ENA Proof of Claim (together, the "Amended Proofs of Claim") the causes of action which Vanguard asserts are the bases for the Enron Proof of Claim and the ENA Proof of Claim and further agrees that the bases for recovery to be set forth in such Amended Proofs of Claim shall be limited to the causes of action identified in the Vanguard Response, to wit: Section 10(b) of the Securities Exchange Act of 1934 as amended and Rule 10b-5 thereunder, all aspects of common law fraud under the common law of the State of New York, the State of Texas and/or the Commonwealth of Pennsylvania, including, but not limited to, fraudulent inducement and fraudulent misrepresentation, fraudulent omission and/or fraudulent non-disclosure, and conspiracy by Enron and/or ENA with other wrongdoers to engage in or facilitate any of the foregoing.
3. Nothing in this Stipulation and Order shall limit the right of Vanguard to assert additional facts not stated in the Proofs of Claim in the Amended Proofs of Claim, or in any further amendment thereof or in connection with any evidentiary hearing relating to the Amended Proofs of Claim or otherwise.
4. The Debtors agree to the dismissal of the Objection with prejudice, subject to the right of the Debtors to file objections to the Amended Proofs of Claim on grounds other than (i) the failure to identify the causes of action relied on; (ii) the failure to comply with the pleading requirements of the PSLRA; and (iii) that the Amended Proofs of Claim are too vague to respond to (in each case so long as the Amended Proofs of Claim comply with the limitation of paragraph two of this Stipulation). The Debtors further agree not to argue that the failure of the Amended Proofs of Claim to satisfy Rule 9(b) of the Federal Rules of Civil Procedure is a basis to negate the evidentiary effect of the Amended Proofs of Claim pursuant to Bankruptcy Rule 3001(f).
5. Vanguard agrees to file and serve on the Debtors an Amended Enron Proof of Claim and an Amended ENA Proof of Claim within 90 days after the date of entry of an order approving this Stipulation and Order (the "Order").
6. The Debtors agree to file and serve on Vanguard an objection, if any, to the Amended Enron Proof of Claim and the Amended ENA Proof of Claim no later than 45 days after the resolution of all claims and/or causes of action which have been or may be asserted by or on behalf of any Plaintiff in the Mega Claim Litigation against Citigroup, Yosemite Securities Trust I and BoNY materially related to the Citigroup prepay referred to as Yosemite I in the Complaint or any claims asserted by or on behalf of the Yosemite Securities Trust I against the Debtors by (a) Final Order (as defined in the Supplemental Modified Fifth Amended Joint Plan of Affiliated Debtors Pursuant to Chapter 11 of the United States Bankruptcy Code (the "Plan")) or (b) a settlement of such claims and causes of action that has been approved by Final Order.
7. Vanguard shall, no later than 60 days after the filing and service on Vanguard of an objection pursuant to paragraph six hereof, file and serve on the Debtors its response to any such objection to the Amended Enron Proof of Claim and the Amended ENA Proof of Claim; and the Debtors' reply, if any, shall be filed and served within 30 days thereafter.
8. Vanguard agrees that the March 14, 2005 deadline for filing objections to proofs of claim set forth in Section 21.1 of the Plan does not apply to the Amended Proofs of Claim, since the Debtors already have objected to the Proofs of Claim. The Debtors will not object to the Amended Proofs of Claim on the grounds that they are untimely to the extent the Amended Proofs of Claim assert only those causes of action listed in paragraph two hereof and agree that, for purposes of assessing timeliness, the Amended Proofs of Claim will be deemed to have been filed on October 15, 2002 to the extent the Amended Proofs of Claim assert only those causes of action listed in paragraph two hereof.
9. The Debtors acknowledge that reserves have been established by the Debtors for disputed claims against Enron and ENA pursuant to the terms of the Plan and that certain "Order Granting Reorganized Debtors' Motion To Establish Unsecured Claims Reserve In Accordance With Confirmed Chapter 11 Plan" dated February 25, 2005 (the "Reserve Order"), which reserves include a reserve for the Liquidated Claim against each of Enron and ENA in the amount of $12,614,624.95 and for the Unliquidated Claim in accordance with the Plan and the Reserve Order — each as long as the Liquidated Claim against each of Enron and ENA and/or the Unliquidated Claim, respectively, remain disputed.
10. Vanguard, Enron and ENA reserve their respective rights pursuant to Section 21.2 of the Plan concerning Estimation of Claims and that certain "Order Pursuant to Sections 105(a), 363(b) and 502(c) of the Bankruptcy Code and Federal Rules of Bankruptcy Procedure 3007, 7042, 9013, 9014 and 9019 (1) Establishing Procedures to Estimate Unliquidated and Contingent Claims; (2) Establishing Procedures to Adjudicate Counterclaims; (3) Establishing Procedures to Compromise Claims and Counterclaims; and (4) Fixing Notice Procedures and approving Form and Manner of Notice", dated February 18, 2004 (the "Claims Estimation Order").
11. Nothing in this Stipulation and Order shall alter, abridge or amend the rights of the parties hereto in any manner except as expressly provided herein with respect to the Proofs of Claim and the Amended Proofs of Claim.
SO ORDERED.