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Enron broadband services’ efforts to exclude testimony by executives about their communications with in-house counsel in a bond dispute have been rebuffed by a New York bankruptcy judge. Judge Arthur J. Gonzalez, in In re: Enron Corp. (Enron Broadband Services LP v. Travelers Cas. and Sur. Co. of America), No. 01-16034, held that “the communications at issue are not protected from disclosure by the attorney-client privilege because the crime-fraud exception applies.” He held that Travelers had established enough evidence to provide a “reasonable basis” to suspect the perpetration of a fraud and to establish prima facie that, at the time of the communications at issue, Enron Global Services executives were “engaged in planning a fraudulent scheme when seeking advice from counsel.” As a result, Travelers’ motion to include evidence of communications between Enron Broadband Services’ former employees and in-house counsel regarding the bond and its underlying transaction was granted. Judge Gonzalez also held that “evidence of communications between EBS’s former employees and in-house counsel . . . is not privileged.” A $17M contract The case arose when insurer Travelers issued a bond guaranteeing Global Crossing Bandwidth’s performance in a transaction between Global Crossing and plaintiff Enron Broadband in March 2001. According to the capacity service agreement, Global Crossing was to provide broadband capacity to Enron and Enron was to prepay the entire contract price in the amount of $17.7 million. Global Crossing also had to issue a surety bond or other collateral for the full amount of the prepayment in case Global failed to perform under the capacity service agreement. Travelers issued a bond to Global Crossing in favor of Enron Broadband. The bond, issued for a one-year term, was terminated in October 2001 by Travelers. According to Enron Broadband, Global Crossing did not take out another bond. As part of the larger Enron Corp. bankruptcy, Enron Broadband Services filed for bankruptcy in the Southern District of New York in December 2001. Global Crossing filed for bankruptcy in January 2002, and was not able to fulfill its obligations to Enron Broadband. In February 2002, Enron demanded that Travelers make payment on the Global Crossing bond. When Travelers declined, Enron Broadband sued under the federal Bankruptcy Code and under state contract law.

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