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Case 1:06-cv-00305-MBH Document 22-6 Filed 04/04/2007 Page 1 of 34


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Case 1:06-cv-00305-MBH Document 22-6 Filed 04/04/2007 Page 2 of 34

U.S. Depart ~ of Justice

Tax Division

Please repLy to: Cout of Fedeal Cla Section

P.O. Box


Ben Frankln Station
Washingt, D.C. 20044

November 8, 2006

New York, Inc. & Subsidiares

Facmile No. (202) 307,0054
Tri Attey: Datr N. Geie
Atty's Diect Une: (202) 616,3448
154-2457 )i
CMN 2006103503

Also via Facsimile (312) 706-9187

Thomas C. Durham, Esquire
71 South Wacker Drive
Chicago, Ilinois 60606

Re: Consolidated Edison Company of

v. United States

Fed. Cl. No. 06-305 T

Dear Mr. Durham:

We have reviewed plaintiffs responses and objections to interrogatories (served on

November 2, 2006). The responses and objections fall far short of what is required under the
rules. Ths is paricularly troublesome given the short time period allowed for discovery and the
fact that plaitiff requested, and obtaed, an extension of time to respond. Whle reserving our
right to raise fuer concerns, ths letter constitutes our initial effort to address the deficiencies in

plaitiffs responses and to lear if


will promptly supplement, arend and/or clarfy its


For your ease of

reference, we have grouped our concerns into categories.

Rule 26(a) Disclosures

Please clarfy whether plaintiffs response to Interrogatory No.1 (seeking the
the Lease Transaction) is intended as a

individuals with knowledge of

identification of

supplement to its Ru1e 26(a) disclosures. Absent hearng back from you, we will continue to rely
upon the representations made in your Rule 26(a) disclosures as constituting an exhaustive list of
those individuals whom you intend to rely upon to support your case-in-chief.

Case 1:06-cv-00305-MBH Document 22-6 Filed 04/04/2007 Page 3 of 34

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Privilege Lo~

We have not received a privilege log in connection with plaitiffs interrogatory

responses. As you are aware, a privilege log must be provided and must conta descriptions

sufcient ''to assess the applicabilty of

the privilege or protection." Ru1e 26(b)(5), RCFC.

Therefore, to the extent that information is being witheld on a clai of privilege (Response
Nos. 7 and 12), please provide a detaled log describing what inormation is being witheld and

Withholdin~ Information Other than For a Privile~e

It appears tht plaitiff

has witheld information other than on the basis of a privilege.

By way of example, in response to our inquiry for inormation about communcations with

outside consultats (Interrogatory No. 14),.mentioned in the complaint, plaitiff

has objected and
declined to respond. The interrogatory requests inormation that could support or refute a factul
contention made by plaintiff in its complait. It was our expectation, given the representations
made in ths case, that responsive inormation exists and is available.

By way of additiona example, in response to Interrogatory No.1, plaitiff indicates that because
it does not have "complete information," no information will be provided. This position not only
falls far short of plaitiffs legal obligations to answer discovery, but is paricu1arly troublesome
here, where plaintiff has complete access to the facts in support of its ta shelter scheme.

In many other instaces plaintiff has raised a myriad of objections that render it diffcult,
if not impossible, to determine whether responsive information is being witheld. Therefore we
ask that you inform us of each instance in which plaintiff has responsive information but wil
continue to rely upon its stated objections to withold or refuse to provide information.

Internal Communications

In several instaces (Interrogatory Nos. 14 and 15) the United States sought to lear of

in this case. In each instance, plaintiff

communcations, including internal communcations, which address the subject matter of the
lawsuit. These inquires are reasonably calculated to lead to the discovery of adssible evidence
has declined to answer citing generalized objections. We
requested the information so that it might shed light on the merits of the plaintiffs claims. The
objections, which include immateriality and relevance, do not provide a legal basis to withold
responsive information.

To the extent that plaintiff deems the Governent's requests to be overly broad and/or
unduly burdensome, it has not ariculated any "burden," nor has it explained how the requests
might be narowed instead of ignored.


Case 1:06-cv-00305-MBH Document 22-6 Filed 04/04/2007 Page 4 of 34

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Interro~atory No. 13

In response to our inquir about a factu contention made by plaintiff (Complait at ,¡,¡

22-24) regarding the actions of

has refued to
respond diectly. Instead, plaitiff has represented that its response may be found in the public

New York's Public Service Commssion, plaitiff

records of

the PSC and generally refers the United States to plaitiffs Rule 26(a) disclosures.

The response neither answers the question posed nor does it specifically identify any documents
that do. Such a tactic is improper and ignores plaitiffs obligation to anwer discovery.

Reference to Documents

Many of

the plaitiffs discovery responses (Response Nos. 1,2,5, 7, 12 and 13)

incorporate the contents of other documents which plaintiff then fails to either anex or otherwse

specifically identify. The responses are in contravention ofRu1e 33 of


Plaintiff's Review of Other Shelter Transactions

the Cour of


. The United States requested information about other shelter trsactions reviewed or

considered by plaitiff at or about the time of

the shelter transaction at issue (Interrogatory No.2).

The discovery was directed, in par, to the subjective component of the economic substace

Plaintiffs response challenges the Governent's definition of "shelter transaction" and

argues that it is overly broad. Whle we certnly do not agree that the interrogatory is over broad,
in an effort to avoid fuer disagreement on ths point, we have identified certn listed
transactions (see accompanying sheet) that you may deem to constitute a "shelter transaction" for
puroses of responding to ths interrogatory.

Negotiation of Rent and Option Prices

The United States requested information about rent and varous option prices in

connection with the Lease Transaction (Interrogatory No.3). Plaintiffs response contas no
factual support and instead relies upon conclusory contentions. For example, plaintiffs do not
state what negotiations took place, if any, when, with whom, and over what issues the paries

agreed or disagreed. Rather, in a self-serving fashion and conclusory, plaintiff

indicates only that
amounts were ultimately determined consistent with plaintiffs "objective" to maxmize economic
paries and documents employed to car out the transaction, the
factual inormation and is inconsistent with plaintiffs obligation to provide

response is devoid of

retus. In light of

the number of

complete discovery responses.


Case 1:06-cv-00305-MBH Document 22-6 Filed 04/04/2007 Page 5 of 34

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While we are available to discuss these matters with you, please formally advise us by
business on Monday, November 13,2006, whether you intend to supplement, amend or

close of

clarfy your responses as requested herein, and if so, when we can expect to obtain the revised

Trial Attorneys, Tax Division


cc: Caren Baerga, Esq.


Case 1:06-cv-00305-MBH Document 22-6 Filed 04/04/2007 Page 6 of 34


NOV 13 ' 06 13: 24 FR MBR&M LLP


Case 1:06-cv-00305-MBH Document 22-6 Filed 04/04/2007 Page 7 of 34

202 TO 93070054


Mayer, Brown, Rowe & Maw LLP

1909 K Stret, N.W.

Washington, D.C. 2000&.1101

Main phone: (202) 263-3000

Main fax: (202) 26~3300



Direct Tel:
Direct Fax:

Nicole M. Bielawski
(202) 263-3452
(202) 762-4242


11/13/2006 -12:58 PM

David N. Geier


Please see attched.


u.s. Department of

Fax #
(202) 307-0054

Telephone #









Berlin Biusls Charlol Chcago Cologne Flinkrt Housn Londim Lo Anel New Vork Pao Alto Pari Wuhingon, D.O.

'ndepnderil Mex CIty Coiri;int Jaul8gul. Nawl1lB y Nader S.C.

Mayr, BlOwn, Row & Maw UP operate In combnan wi our assocated Engsh Umit liailit paitl'hlp In the ofce lised Bb.

NOV 13 ' 06 13: 24 FR MBR&M LLP

P. 02/08
Case 1:06-cv-00305-MBH Document 22-6 Filed 04/04/2007 Page 8 of 34

202 TO 93070054

November 13, 2006

(202) 307-0054

David N. Geier
U.S. Deparent of Justice
Tax Division
555 Four Street, N.W.
Room 7919
VVashlgton, D.C. 20001

t', R U \' N
8. '\1 1\ \/

Mayer, Bro. Row & Maw LLP
71 Sou Wackr Dii
Chcago. IlUis806-

Main Tel (312. 78.(
Main Fax (312) 701-771


Thomas C. Durham
Tel (312) 701.7216
Dire Fax (312) 7069187

Re: Consolidated Edison Co. v. United States.

Docket No. ~30S T

Dear Mr. Geier:

VVe are in rept ofy(iur correspondence of

deficiencies in Con Edison's resonses to the United States' Fir Set of

Request for Producton.

November 8, 2006, concerg alleged

Interogatories and First


Con Edson intends to fuly comply with its discover obligations under the Rules of

Cour ofFeder Clai e'RCFC") an will supplement its resonses as necessar. The
strctue of ths respnse folluws your correspondence.

Con Edison obtaed a one-day extenion and ser its resnses to th Unite Staes'

Fir Set of

Intergatories on November 2,2006. by elecnic mail and overght deliver. Con
Edison reoved a two-day e:Ktenion and sered its responses to the United States' Firt Reques
for Producton on November 3, 2006, by band. In rense to these request, Con Edison
produce 1,812 pages of documents. Con Edson provided the United States with a CD ROM
conta TIF images oftbe docuents an the begjnning and endig bates ranges, as
requeted by the United StaR'S. The two--ay delay was atbutale, in par to the United States'
request that Con Edson provide its docoents in elecnic form. Whle Con Edson
appecated the United State~' couresy in grti the requeed extenons, the net result of
these extensions was that the United States reeived Con Edin's responses to both its Fir Set
of Intergatories and Firs Request for Pruction earlier than it would have if Con Edison had
sered them by U.S. mai, on November 1,2006. .

Your leter serously mischarctes Co Edison's responses by reptedy alleging that

Con Edson faied to provide responsive inonntion or ignored the Unite Staes' requests,
when, as you are aware, Con Edison provided a detled response to eah Interogaor and
produce over 1,800 pages of docuents in resonse to the Requess to Produce. VV e believe

Bønin Bruls eti1tte Chicago Co Frankrt Housn Londn Lo Anel New York Pal AJ Pall Wasng. D,C.

Indeendnt Me CI Corrndent Jaurgui. Navarre y Nadar S.C.

Mayer, Brown. Flow & Maw uP QpratBs In combtl VI our assciate Enris fimlt libl partrshi In the ofce \i ab.

NOV 13 ' 06 13: 25 FR MBR&M LLP

202 TO 93070054

P. 03/08


Case 1:06-cv-00305-MBH Document 22-6 Filed 04/04/2007 Page 9 of 34

David N. Geier
November i 3, 2006
Page 2

that accurately characterzing Con Edison's respnses would provide a beter framework for
movig forward with ths case.

Rule 26(8) Disclosures

Con Edison is in the prOl.:ess of

reviewig its current disclosures under Rule 26(a)(1),

served on September 25, 2006, und intends to supplement its disclosures on or before
November 17,2006. Con Edison's First Supplement to its Rule 26(a) Disclosues will notify the
United States that Con Edison may use any document produced in discover in support of its
clais or defenses. Con Edison also will identify additional documents and individuals that it
may use to support its case. Con Edison does not intend to use all individuas identified in its
resonse to United States' Inten"ogatoryNo. i to support its case.

Privße2e LoS!

As explicitly pertted by RCFC 33, Con Edison responded to sever Intergatories by
producig respnsive docuenti. These docuents were included in Con Edison's resnses to
the United States' Firs Request for Production. To the extent that resonsve docuents were
privileged, Con Edison provided a priviege log in connection with its response to the United
States' First Request for Production, as requesed in the histrctons thereto. The United States
did not reques that Can Edison provide a privilege log in the Intrctons to its Fir Set of

In reponse to Intergatory No.7, Con Edison

opinions protected by the atomey-client privilege. These lega opiions and docwnents
referencing them are identified and descrbed with parcuanty on the privilege log prouce in
comiection with Con Edson's riispnse to the United State' Fir RequeSt for Production. The
individuas who provided each legal opinion also ar identified on the privilege log.

indicated that it was witholding legal

In resonse to Interoga1ory No. 12, Con Edson provided a copy of

Agreeent entered into in coimccon with the Lee Traction and indicated that the
Agrent was entered into for the purose of addressing the mater set fort therei. Con
Edison is not in possesion of ai iy docuents setting fort its reasons for enterng into the Tax
Indemty Agreeent.

the Tax Indemty

Con Edson objected to ihe United States' request for an explanation of

enterg into the Agrent, to the extent that the request sought lega advice. Tht beig said,
Con Edison is not aware of any privileged communcations regag its reaons for enteg into
the Tax hidenty Agreeent and has not witheld any explanaton of its reons for enterg
into the Ageeent on the basis of privilege.

its reaons for

NOV 13 '06 13: 25 FR MBR&M LLP

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Case 1:06-cv-00305-MBH Document 22-6 Filed 04/04/2007 Page 10 of 34

202 TO 93070054


David N. Geier
November 13, 2006
Page 3

Witbholdl1! Information Other than for a Privles:e

Con Edison has not withheld any responsive information other than on the basis of
privilege. The one exception is documents regardig the NUON transaction, identified in
Interogatory Response No.2. These documents, as noted in the resonse, would be volumous
to produce and are not relevant, as they conce a traction entered into two taxable years afer
the Lease Transaction.

Con Edison objected to cer Interogatories and set fort the grounds for such

objections, includig privilege. As clearly stated in its resonses, notwthtading its objections,

as possible and witheld infonnation only on

Con Edison answer all Interrogatones as fuly

the basis of privilege.

Con Edison noted instances in which it did not have cer information or the

inomiation it had was limited in scope. In doing so, Con Edison followed the United States'
instrction that "(i)f, for any reason, the information canot be fushed as requested, Plaintiff
should respond to the extent ptissible an specify the reon for its inabilty to reply in full."

For example, in response to Interrogatory No. I, Con Edison identified all individuals

who, to its knowledge, may have discoverble infonnation regarding the Lease Trancton. The
United States' allegation that "no informaton" was provided in resonse to Interogatory No. i
is inaccurte. Con Edison's respnse to Intergatory No. i is six pa.ges long and identifies 28
individuas associated with i 1 entities other than Con Edison.

The United States" allegation that "plaitiff

ba complete aCcess to the fact in suppo of

its ta shelter scheme" is also inaccwte. Con Edison does not have Ucomplete information"
with repec to thrd-par indj viduas or docuents. The Leae Traaction was a business
tracton which, like most business tranacton. involved thd pares with whom Con Edson
dealt at ~'s len. The intere of these pares wer not aligned with those of Con Edison.
The role playe by these thrd pares is evident from the Operave Documents produce.
Fuerore. Con Edson, as descrbed below, has prvided all resonsive informon frm
thrd pares in its possession.

In resnse to Interrogatory No.2, Con Edison limted its response, as stted to LILO
and other leaing t:tions which it entered into or consider. In rense to hitergatory
No. 14. Con Edison limite the scope of its reonse, as stted. but did not "declinen to resnd"
as the United States alleges. Con Edison identified its key advisors, including
Cornertone Financial Adviscirs, and produced all relevant docuents referencing Cornertone
Fincial Advisors' assistace in reviewi the Lee Traacton (see Inteal CommuncatioÌl

thes Intergatories, Con Edson believes tht such

Interogatry No.2,

below). Based upon the broad nate of

limitations wer reaonable. The United States has narwed the scope of
and Con Edison will resnd to the revised Intergatory.

NOV 13 ' 06 13: 26 FR MBR&M LLP

Case 1:06-cv-00305-MBH Document 22-6 Filed 04/04/2007 Page 11 of 34

202 TO 93070054

David N. Geier
November 13, 2006
Page 4

Internal CommW1cations

Con Edison adequately )'esnded to Interogatories No. 14 and No. 15. The United

States' allegation that Con Edison "declined to answer" ignores the fact that Con Edison
produces over 1.800 pages of respnsive documents, most of which are responsive to either
Intergatory No. 14 or 15.

Interogatory No. 14 requests that Con Edison "(i)dentify all outside consultats (it)

conuuncated with..., including... the opportities that were preented... and all
documents. . ..n Con Edison identified its key advisor with respect to the Lease Transaction and
provided aU documents referencing such advisor's assistace in reviewing the Lease Trasaction,
Interational Energy Parer, the other advisor identified, did not provide any advice in
connection with any LILO or other leasing tranacton which Con Edson entered into or
considered. and thus Con Edison did not produce any documents referencing International
Energy Parer other than Batl3 #PF0Q426-44 which was included in Con Edison's Rule 26(a)
Disclosures. Interogatory No. 14 does not call for Con Edison to disclose the contents of oral
communcations. Even if Intei-rogatory No. 14 did request the content of ora conuuncatons,
Con Edison would not be able to resond for the reaons discused in coection with
Interogatory No. 15 below.

Interrogatory No. 15 reques that Con Edison set fort "the contents of communcations"

and ''identifY the docuents .. . constituting the communcations" with relevant pares before
enterg into the Lee Traa~tion. Con Edson produce all responsive documents, as
the over

pertted under Rule 33(d) and as requeted by Interogatory No. 15. The majority of
1,800 pages of documents produced are resonsive to Integatory 15. These docuents

Diector meetigs, as well as all nonwprivilege materal

include miutes of relevant B()ard of

considered by the Board of Di retors, which includes numerous detled presentaons
conceg the Lease Tranaction. Con Edison has not witheld any materal respnsve to
Intergatory No. 15 except a.t; set fort in the pnvilege log provided in connection with its
response to the Fir Request j or Production. Thereforet as requied by Intergatory No. 15,
Con Edison has identified the "docuents mentioning discusig, refer to or constituting the

It is not clea whether the United States intended to include ora communcations in

Intergatory No. 15. To the extent that hiterogatory No. 15 could be constred as applyig to
ora conuuncations not refkcted in any docuent, Can Edson is not in a position to cerfy,
under oath. the content of all ora communcations with employee, former emloyees, or thd
pares. The Lee Traction was a business tranacton which involved multiple paes and
spamed sever month. In order to identify and cerfy al such oral communcations. Con
Edison would have to conduc.t depositions, under oath of al relevant individuas. Ths would
constute a tremendous burden and would extend beyond Con Edison's discover obligaons.
Con Edison is not requied to conduct discover for the Uiuted State, at its own expense. Con
Edison, however, has smnaried in its Rule 26(a) Disclosures and its reonse to Interogatory

NOV 13 ' 06 13: 27 FR MBR&M LLP

Case 1:06-cv-00305-MBH Document 22-6 Filed 04/04/2007 Page 12 of 34

202 TO 93070054


David N. Geier
November 13, 2006
Page 5

No.1, the general natue ofthe 1ìictul information believed to be known by each peron

Interroe:ato\X No. 13

Intergatory No. i 3 reuests inormation that is not unque to Con Edison. The steps
taken by the New York Public Serce Commssion ("PSC") to develop a competitive elecc
public record. The United States' claim that Con Edison

industr in New York are a matter of

has ''rfued to respond" is, OnCll aga inaccurte as Con Edson provided the citation for a
the deregulation process in New York.

published case which provides a detiled sumar of

public recrd, that are in

Con Edison also produced PSC documents, all of

which are a matter of

its possession wider RCFC 26(a)(1) and 33(d). PSC documents were included at begiiuing
Bates ## PF004645, 004999,005000,005001,005002,005039,005061,005125,005135,
005146, and 005308.

Con Edison is not obligated to swnare these documents for the United States. RCFC
33(d) states that "(w)here the answer to an interogatory may be derved or asceraied from the

busness records of

the par ... and the burden of dervig or ascertg the answer is

substatially the same for the party serng the interogatory or the par sered it is a suffcient
answer to such an interogatory to specfy the rerds from which the anwer may be derved or
asceaied.. u" The buden of suuarzig these documents would be SUbstantially the same
for Con Edison as it would be f()r the United States.

Con Edison ha recetly identified several additional documents related to the New York
Public Serce Commssion and will inolude these docuents in its Firs Supplement to its Rule
26(a) Disclosur.

Reference to Documents

The documents referenc~ were all included either in Con Edson's Rule 26(a)

Disclosues or its reonse to the United State First Reques for the Prducton as petted
under Rule 33(d). These docurrients wer provided, as requesed by the United States, on a CD
ROM with TIF files. Beging and ending bates rages wer also provided. In its reonse to
the Firs Request .for Producton, Con Edson specificay referced documents prvided in
resonse to Intergatory No.2. Con Edison also identified a list of.infrascte project
reponsive to Intergatory No. 14. Con Edson fuer identified the Deloitt & Touche work

NOV 13 ' 06 13: 27 FR MBR&M LLP

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Case 1:06-cv-00305-MBH Document 22-6 Filed 04/04/2007 Page 13 of 34

202 TO 93070054


David N. Geier
November 13. 2006
Page 6

Most of

the documents iirovided were responsive to both Document Request No.1 and

overlapping, and most of

Request No.2. and thus, it was not possible to organize the documents by request. Furerore,
the requests to identify documeiits made in Interrogatories No.7 and No. 15 were broad and

the produced documents relate to both Requests. Similarly, documents
responsive to Interrogatory No. 14 overlap with those responsive to Intergatory Nos. 7 and 15.
The process of organzing the documents provided by reference to each Interogatory would be
substatially the same for Con Edison as it would be for the United States,

Plaintif's Review of Other Shelter Transactions

Con Edison will supplement its anwer to Interrogatory No.2 to respond to the resed

November 8.

intergatory set fort in the Uiute States~ correspondence of

In its Supplement to Interogatory No.2, Can Edson will inorm the Uiùted States that it

did not enter into or consider aiiy listed tranactions, as identified on the attchment to your
the leaing tractons identified in its resnse to

November 8 letr, with the exootion of
Intergatory No.2.

Neiotiation of Rent and O))Jion Prces

Intergatory No.3 is vague and unclear. In its reonse to Interrgatory No.3, Con

rent and the purche option prices were negotiated. To

Edison explained how the amounts of

fuer assist the United States, Con Edison directs your attention to Bates #PF003241-46 which

wa included as par of

Con Edison's Rule 26(a) Disclosues. The invesent in the Lee

Traacton was subjec to a competitive bidding proces. Bates #PF00324146 set fort the
Con Edison's bid and the assuptions on which that bid were based as accted by

ters of

South Holland Electic. As set for in Can Edson's response to Intergatory No.3. computer
softare was used to set forth retal schedules which "optie" the yield to Con Edison while
maintanig the net present value beneft offeied to South Hollan Elecc. The net prest
the benefit reted by

value benefit bargaed for by South Holland Elec1rc is the amount of

South Holland Electrc afer takg into accunt the net preent value of its obligations under the
leae, including the potential exercise of the purchase option should South Holland Electic
choose that option. As explaî oed in r~ponse to Interogatory No.3, the allocations of renta
income and deductions with resect to the Lee Traacton for feder ta purses were
designed to comply with section 467.

As note above, Interrogatory No.3 is extremely generand vague. Con Edison wiU

repond to fuer Intergatories wmch request more specfic infonnaton in light of Con
Edison's respons to Intergatory No.3

NOV 13 ' 06 13: 28 FR MBR&M LLP

Case 1:06-cv-00305-MBH Document 22-6 Filed 04/04/2007 Page 14 of 34

202 TO 93070054


David N. Geer
November 13, 2006
Page 7

In conclusion, Con Edist)n fuly intends to comply with its discove obligations. We
will serve Con Edison's First S\.ipplement to both its Rule 26(a) Disclosures and Responses to

United State' Firt Set of

Inten'ogatories by

November 17,2006. If

you have fuer concers,

please let us know. We will be glad to work with you to resolvi any remain concer
regarding Con Edison's responses.

Ver trly your,

~ L-cu~'

Thomas C. Durhai
Nicole M. Bielawski

00: A. Scher

** TOTAL PAGE. 08 **

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Case 1:06-cv-00305-MBH Document 22-6 Filed 04/04/2007 Page 16 of 34


Mayer, Brown, Rowe & Maw LLP
190 K Street, NW.
Washington, D.C. 2001101

Main Tel (202) 263-300
Main Fax (202) 263330

Nicole M. Bielawski
Direct Tel (202) 263-3452
Direct Fax (202) 762-4242

November 17, 2006


David N. Geier
U.S. Departent of Justice
Tax Division, Room 7919
555 Fourth Street, N.W.
Washington, DC 20001

Re: Consolidated Edison Companv of

New York.

Inc. & Subsidiares v. The United States.
Docket No. 06-305 T

Dear Mr. Geier:

I have enclosed the following:

(1) Con Edison's First Supplement to its Rule 26(a) Disclosures;
(2) Con Edison's First Supplement to its Responses to the United States' First

Request for Production;

(3) a CD ROM containing CE# beginning and ending bates numbers for the

documents PF#00552i through 7333, previously produced on November 3,
2006; and

(4) a CD ROM containing images and CE# and PF# beginning and ending bates

numbers for documents PF#007334 through 7842, produced in connection with
the supplements referenced in paragraphs I through 2 above.

It was not possible for us to segregate the documents PF#007334 through 7842 between
the Rule 26(a) Disclosures, the varous Interrogatories and the Document Request. The majority

the documents fall into more than one category. As a result, we are producing the CE#


beginning and ending bates numbers which, when organized sequentially, reflect the
organization as provided to Mayer, Brown, Rowe & Maw LLP from Con Edison's files.

Con Edison, however, notes that documents PF#007494 though 7511 and 7708 through
7842 are responsive to Interrogatory No. 13 regarding the Public Service Commission, and the
activities of the Public Service Commission also are discussed in some of the board minutes

Con Edison has conducted additional due diligence in response to the United States'

revised Interrogatory No.2. Con Edison, despite such due diligence, is not prepared to respond
at this time. As we are sure you can appreciate, the responsible individuals at Con Edison are

Berlin Brussels Charlotte Chicago Cologne Frankfurt Houston London Los Angeles New York Palo Alto Paris Washington, D.C.

Independent Mexico City Correspondent: Jauregui, Navarrete y Nader S.C..

Mayer, Brown, Rowe & Maw LLP operates in combination with our associated English limited liabilty partnership in the offices listed above.

.i ..-,


Mayer, Brown, Rowe & Maw Uf)

Case 1:06-cv-00305-MBH Document 22-6 Filed 04/04/2007 Page 17 of 34

November 17, 2006
Page 2

cautious about making a representation under oath as to whether other current or former
employees ever considered or reviewed transactions, other than those previously identified, that
may constitute listed transactions. It is diffcult for a corporation to make a negative
representation, i.e., a representation that something did not occur, approximately ten years ago.

The response to revised Interrogatory No.2 wil represent that Con Edison did not

paricipate in any other shelter transaction, as defined by the United States' correspondence of
November 8, 2006, during 1996 through 1998, other than the NUON transaction previously
identified in its response to Interrogatory No.2.

We are in receipt of

November 15,2006, and we wil provide a
detailed response to you. We have recently received additional documents from Con Edison in
non-redacted form and wil supplement Con Edison's responses with non-redacted documents, as

your correspondence of

Sincerely, . ().


Nicole M. Bielawski


cc: (via electronic delivery)

Thomas C. Durham
David F. Abbott
Andrew W. Scher

Case 1:06-cv-00305-MBH Document 22-6 Filed 04/04/2007 Page 18 of 34


Case 1:06-cv-00305-MBH Document 22-6 Filed 04/04/2007 Page 19 of 34

U.S. Depart J.t of Justice

Tax Division

Please reply to: Court of Fedeal Clams Section

P.O. Box 26
Ben Frankln Station
Washingt, D.C. 20044

December 12,2006

New York, Inc. & Subsidiares


Facimile No. (202) 307,0054
Tri Attey: David N. Geier
Atty's DirectUne: (202) 616,3448
CMN 2006103503

Also via Facsimile (312) 706-9187

Thomas C. Durham, Esquire
71 South Wacker Drive
Chicago, Ilinois 60606

Re: Consolidated Edison Coinpany of

v. United States

Fed. Cl. No. 06-305 T

Dear Mr. Durham:

I am writing in fuerance of our effort to resolve certin outstanding issues arising from
Plaintiffs responses to wrtten discovery which remain prior to seeking assistance from the Cour.
Despite the exchange of correspondence, your most recent response,


(i) Interrogatory No. 1 - identif individuals with knowledge

individuas listed in our letter of

October 13,2006 constitutes a list of

In the final paragraph of

not have "complete information regarding their knowledge of

Plaintiff s response to Interrogatory No. 1 Plaintiff indicates that the
the individuals that Plaintiff
would expect to have information pertining to the RoCaJ shelter transaction, but then declines to
provide any fuer information with respect to these individuas, citing the fact that Plaintiff does
has an obligation
to respond with whatever information it may have regarding the knowledge these identified
individuals may have pertnig to the facts of the RoCaJ shelter transaction. Ths is tre whether
or not such a response may be a complete recitation of all of the facts known by these individuas.
Plaintiff canot hide behind an assertion that it does not have "complete information" regarding
these respective individuals' knowledge and simply refuse to provide any information.

the facts." Plaintiff

(ii) Interrogatory No. 2 - listed transactions

With respect to Plaintiffs response to Interrogatory No.2, following our voluntar narowig
of the Interrogatory by provision of specific listed transactions, you first indicated in your November

Case 1:06-cv-00305-MBH Document 22-6 Filed 04/04/2007 Page 20 of 34

- 2 -

13, 2006 correspondence that you anticipated Plaitiff would supplement its response to indicate that
Plaintiff did not enter into or consider any such listed transactions except those aleady identified in
response to Interrogatory No.2. However, by your November 17, 2006 correspondence, Plaintiff
supplemented its response to indicate that Plaitiff did not enter into any listed transactions durng
the years i 996 through 1998, and that Plaitiff could not respond as to whether any of the listed
transactions were considered because it could not locate anyone that would commit to such a
statement under oath. Such a position is paricularly troubling given the Plaitiffs representation
in the final paragraph of its response to Interrogatory No.2, that the Plaintiffs documents identify
other LILO transactions considered by Plaintiff. Please let us know whether Plaitiff intends to
respond to ths portion of Interrogatory No.2, or whether Plaitiff intends to rely on the statement

in your November 17,2006 correspondence as the reason for failng to respond to ths portion of

interrogatory .

(ii) Interrogatory No. 3 - pricing information

In regards to Plaintiffs response to Interrogatory No.3, in which the Governent requested
information about how the rent and option prices were negotiated, calcwated and allocated, while
the recent citation to PF003241-PF003246 does provide some information regarding assumptions
Con Ed purortedly relied upon in submitting the "proposal" included in cited documents, it does
not indicate how the specific amounts were negotiated or allocated between the. paries. Because the
reference to PF003241-PF003246 does not provide a suffcient response to Interrogatory No.3, we
request that Plaintiff supplement the information contained in that document to provide a complete
response to ths interrogatory. Finally, your recent attempt to object that the interrogatory is vague
and unclear ignores the fact that no such objection was asserted in Plaintiffs initial response to the
interrogatory. Your claim that we must now ask Plaintiff more specific questions concerning how
the varous rent obligations and option prices were negotiated, calculated, and allocated is specious
has more specific information regarding the requested negotiations, calculations,
and allocations, it is Plaintiffs obligation to provide such information where responsive to the
request. For example, an oblique reference to "computer softare" is insuffcient to describe the
negotiation process. We request that Plaitiff supplement its response to identify the specific
softare and to describe how the softare was utilzed the instat case. Please let us know whether
or not Plaintiff intends to supplement its response to Interrogatory No.3 to provide a complete
response thereto.

at best. If


(iv) Interrogatory No. 12 - tax indemnity agreement

In your December i, 2006 correspondence, you have represented that there are no documents
detailng Plaintiffs reasons for entering into the tax indemnty agreement. Whle Plaintiff may
desire to reference documents in lieu of providing a wrtten response, the apparent absence of a
document does not alleviate Plaintiff of its obligation to answer the interrogatory. Therefore,
Plaintiff must state its reasons for entering into the tax indemnty agreement.

(v) Interrogatory No. 14 - identity of outside consultants

In your explanation of Plaintiff's response to Interrogatory No. 14, in which we asked


Case 1:06-cv-00305-MBH Document 22-6 Filed 04/04/2007 Page 21 of 34

- 3 -


Plaintiff to identify the outside consultats it communcated with to locate potential international
energy infastrctue investment opportties as it had pled in its Complait, it appears that Plaitiff
has improperly and unlaterally limited its response to identifying only what it deems to be "key"
advisors for the RoCaJ shelter tranaction, namely Cornerstone Financial Advisors, LP. Furer,
has indicat€bd that all "relevant" documents relating to that advisory relationship have been
produced. This explanation indicates that Plaitiff has failed to identify "all" advisors and
conswtats with respect to. potential international energy inastrctue investment opportties,
including all advisors conswted with respect to the RoCaJ shelter transaction. The stated objections
of relevance and immateriality are paricularly inappropriate in response to ths interrogatory given
the allegations in Plaintiffs Complaint. Furer, because the "over breadth" objection, which we
do not believe to be applicable in any event, only relates to the production of documents, Plaintiff
the requested consultats and advisors.
Therefore, we request that Plaintiff immediately supplement its response' to identify all such
conswtats and to identify and produce all responsive documents, not simply those Plaintiff and its
counsel deems relevant.

has not aricwated a valid objection to the identification of

(vi) Interrogatory No. 15 - communications re Lease Transaction

Plaintiffs response to Interrogatory No. 15, in which the Governent requested that Plaintiff
identify all individuas and entities, including employees, board members and thrd paries, that it
communicated with about the Lease Transaction prior to entering the transaction, including the
contents of such communcations, is also troubling. Plaintiff taes a position directly contrar to the
law by asserting that Plaintiff canot be required to ask its own employees for responsive
information. In fact, Rule 33 requies that Plaintiff conduct an investigation, and inquire of the
employees and representatives likely to have relevant information in order to respond to the
interrogatory. Plaintiffs objection that a response would improperly require it to depose its own
employees to ascertn the requested information has no basis in the law. Furer, a review of
pertinent documents previously produced by Plaintiff indicates that the number of Plaintiffs
employees that purortedly paricipated in the RoCaJ shelter transaction is not so great a number that
inquiring of them wowd be burdensome, much less unduly burdensome.. -.

Furer, to the extent that Plaintiffs response relies on documents produced in discovery,
such reliance is faulty for several reasons. First, the reliance ignores that oral communcations as
well as wrtten communcations have been requested. Second, the document production is far from
complete given tht the United States is aware of addit ional documents responsive to. this
interrogatory that have yet to be produced by Plaintiff. For example the United States is aware of
several emails between offcers and directors of Con Ed discussing or referrng to the Roca3
transaction which have not been produced or identified by Plaintiff.

In addition, your December 1,2006 correspondence purorts to belatedly assert an attorney-
client privilege when heretofore none had been timely or properly raised. Failure to raise the
privilege constitutes a waiver.

As a fial note, while I am sure you are aware the scope of discoverable inormation goes
well beyond the simple notions of relevancy, Plaintiffs continued insistence to claim that much of


Case 1:06-cv-00305-MBH Document 22-6 Filed 04/04/2007 Page 22 of 34

- 4-

the information sought from Plaintiff is not relevant to the ta treatment of the RoCaJ shelter
transaction is misplaced. For example, Plaintiff ignores the fact that it made numerous allegations
in its Complaint pertning to the purose of the RoCaJ transaction as it related to Con Ed's
purorted overall business plan, thus entitling the United States to discover inormation pertinng
to Con Ed's paricipation and consideration of other transactions. Furher, the "routine business
communcations" of Con Ed employees regarding the RoCaJ shelter transaction are highly relevant
to Con Ed's subjective view of the tranaction, an importt consideration in the instat matter.
Therefore, Plaintiffs continued inistence to rely on relevancy objections lacks a valid basis here
wherè the requested information goes directly to the allegations in the Complaint and the elements
of the clais at issue.

Privilei:e Loe

correspondence of

Several issues remain with respect to the updated privilege log and the documents produced
in conjunction with your December l, 2006 correspondence. First, while you stated in your
will produce
non-redacted copies of documents not included on the privilege log, we have not yet received any
such production and there ha been no indication when we can expect to receive additional
these documents originally,

November l7, 2006 and agai on December 1,2006, that Plaintiff

documents. Because you did not assert a privilege pertining to any of

I see no reason for the delay in producing the unedacted documents.

In light of your explanation of the substace of the communcations contained in the
November 20, 1997 memo found at PF005618-19 and CE004704-05, even if a privilege were
applicable, that privilege has been waived by production of other documents to the United States
Shearan & Sterling. Similarly, to the
extent any of the other identified documents contain or discuss the advice of Shearan & Sterling,
it appears that any privilege that may have applied to those documents has been waived by the
production of documents actually containing or referring to such advice.

regarding the "anticipated substace" of

the legal advice of

In addition, to the extent that you are asserting a work product tp shield documents from
production, please state the basis for that assertion, including a specific identification of the basis
for your claim that these documents were prepared "in anticipation of litigation," as you have
claimed with respect to the draf legal opinion of Shearan & Sterling produced in discovery.

Please confrm whether or not Plaintiff is withdrawing its claim of privilege with respect to

Interrogatory No. 12.

Rule 26(a) Disclosures

You have represented for some time that Plaitiff

disclosures. If

ths is stil your intention, and given the press of deadlines, please let us know if

intends to fuer supplement its Rule 26( a)

will be makng any additional disclosures, and if so, when.


Case 1:06-cv-00305-MBH Document 22-6 Filed 04/04/2007 Page 23 of 34

- 5 -

We would appreciate a prompt response to the issues raised herein.

Sincerely yours,

LLRTrial Attorney, Tax Division


cc: Caren Baerga, Esq.


Case 1:06-cv-00305-MBH Document 22-6 Filed 04/04/2007 Page 24 of 34


Case 1:06-cv-00305-MBH Document 22-6 Filed 04/04/2007 Page 25 of 34

. .

..' .,.~ .,~_"""'._'_'m_..__'~~__


Mayer. Brown, Rowe & Maw LLP
71 South Wacker Drive
Chicago, Illnois 60606-437

Main Tel (312) 782-Q
Main Fax (312) 701-nl1

Thomas C. Durham
Direct Tel (312) 70t-7216
Direct Fax (312) 706-9187

December 2 L, 2006


David N. Geier
Joseph A. Sergi
U.S. Department of Justice
Tax Division
555 Fourth Street, N.W.
Room 7919
Washington, D.C. 20001

Re: Consolidated Edison Co. v. United States,

Docket No. 06-305 T

Dear David and Joe:

This letter responds to the United States' con-espondence of December 12,2006,

identifying additional concems with respect to Con Edison's responses to the United States' First
Set of Interrogatories and First Request for Production of Documents. This letter follows the
strLlcture of the United States' correspondence.

As explained in this letter, Con Edison has complied with its discovery obligations, and

the United States' allegations to the contrary lack merit. Con Edison sU,bmits that the United
States' current tactic of demanding on-going follow-up to its Inten-ogatories based upon overly
broad interpretations of such Interrogatories is not effective. It would be more useful for both
parties if the United States served directed Inten-ogatories.

Con Edison, as it has repeatedly stated, fully intends to satisfy its discovery obligations

under the Rules of the Court of Federal Claims ("RCFC"). Con Edison, although it does not
believe its responses are deficient, wil provide additional information in an effort to address the
United States' concerns.


(i) Interrogatory No. 1: Individuals with Knowledge

The United States mischaracterizes Con Edison's response to Interrogatory No. I. In its

response to Interrogatory No. i, Con Edison identified individuals who Con Edison believes may
have discoverable information regarding the Lease Transaction, including nine current and

Berlin Brussels Charlotte Chicago Cologne Frankfurt Houston london Los Angeles New York Palo Alto Paris Washington, D.C.

Indepndent Mexico City Correspondent: Jauregui, Navarrete y Nader S.C.

Mayer, Brown, Rowe & Maw LLP operates in combination with our assocated English limited liabilty partnership in the offces listed above.

Case 1:06-cv-00305-MBH Document 22-6 Filed 04/04/2007 Page 26 of 34

Mayer, Brown, Rowe & Maw LLP

David N. Geier
December 21, 2006
Page 2

former employees of Con Edison and sixteen additional individuals associated with unrelated
entities which were retained by Con Edison as advisors. Con Edison further described the nature
of each individual's involvement in the Lease Transaction and the general substance of the facts
Con Edison believes to be known by each. Con Edison's response to Interrogatory No. l is six
pages in length.

(n the last paragraph of its response to Inten"ogatory No. I, Con Edison stated, in regards
to Defendant's letter of October 13,2006, "(w)e expect that the persons named in the letter may
have information regarding their respective institution's role in the Lease Transaction...."
(emphasis added). Contrary to the United States' allegation, Con Edison has not "declineld) to
provide any further information."

Con Edison has produced extensive documentation regarding the Lease Transaction.

Many of the individuals identified in the Defendant's letter of October 13,2006, are referenced
in these documents. Pursuant to RCFC 33(d), it is acceptable for Con Edison to produce
business records in response to an interrogatory. The burden of culling through these documents
and summarizing the information that mil.). be known by individuals identified would be
"'substantially the same" for Con Edison as it would be for the United States.

Con Edison initiated a telephone conference yesterday aftemoon in an attempt to discuss

some of the concerns raised in the parties' correspondence and work towards the resolution of
such concerns. During the conference, counsel for the United States clarified their expectations
with respect to Interrogatory No. l. In particular, Joe Sergi articulated the United States'
position that Con Edison has an obligation to summarize information contained in the business
records produced. Con Edison does not agree with this position, but in an effort to assist the
United States, Con Edison wil supplement its response to IntelTogatory No.1 to provide such
i nfoimation.

Finally, Con Edison notes that in the United States' Rule 26(a) Disclosures, the United

States identified all "individuals identified in the documents produced herewith" as individuals it
may use to support its claims or defenses. The United States, despite our requests, has not
provided any further information concerning these individuals it has indicated an intent to rely
upon or the subject matter of the information possessed by them. Since the United States has
identified these individuals as persons upon whom it intends to rely, we would expect the United
States to describe the subject matter of their information, which it has not done. Con Edison, in
contrast, has supplied information concerning the "subjects of the information" possessed by
those individuals it intends to rely upon. Thus, Con Edison has been considerably more
foi1hcoming than the United States in this regard.

Case 1:06-cv-00305-MBH Document 22-6 Filed 04/04/2007 Page 27 of 34

Mayer, Brown, Rowe & Maw LLP

David N. Geier
December 21, 2006
Page 3

(ii) Interrogatory No.2: Listed Transactions

Con Edison, after further discussions with Con Edison employees, supplemented its

response to IntelTogatory No.2 on December 13, 2006.

(iii) Interrogator.',. No.3: Pricing biformatiOll

Con Edison's initial response to Inten'ogatory No.3 was adequate. The fact that the

United States may have follow-up questions as a result of that response does not indicate that
Con Edison's response was deficient. Con Edison provided a supplemental response to
Intenogatory No.3, which the United States admits was helpfuL.

Con Edison's objection to Intellogatory NO.3 as vague and unclear was based upon the

United States' attempt to expand the scope of the IntelTogatory in its correspondence of
November 8. 2006, thereby causing the Interrogatory to become vague and unclear.

As explained previously. Con Edison and South Holland Electric negotiated the rent and
option prices in order to maximize their respective economic retuiis from the transaction, should
the option be exercised. Also. as explained previously, the rental amounts were allocated in
accordance with section 467 of the Intemal Revenue Code for tax purposes. Rental amounts
were calculated by reference to the fair market rental value of the property. As explained in the
supplemental information provided, which the United States agreed was helpful, the parties'
negotiations on these points were constrained by factors such as the fair market value of the

property and its useful

life. If, by its request, the United States intended a different meaning for

"negotiated," "calculated," and "allocated" other than the meanings of those words as we
understand them, Con Edison requests that the United States clarify its request.

In response to the United States' follow-up question in its cOlTespondence of December
12,.2006, the computer program used was called "ABC." This computer program is identified
on the top of each of the pricing runs which Con Edison previously produced. The program was
created by Wan-en & SeIbert, Incorporated. See Robert Holzman,
identified in Con Edison's First Supplement to its Rule 26(a) Disclosures, ran this software
program on behalf of Con Edison. Con Edison has already provided information on "how" the
software was used. The ABC program is standard software which is widely used in the leasing
industry in order to perform the calculations required in connection with leasing transactions. As
previously indicated, one of the functions of this software is to calculate rental amounts in a
manner which wil optimize the economic returns to each party. It is also capable of performing
the calculations required by section 467 in order to ensure compliance with those provisions.

Case 1:06-cv-00305-MBH Document 22-6 Filed 04/04/2007 Page 28 of 34

Mayer, Brown, Rowe & Maw LLP

David N. Geier
December 2 I , 2006
Page 4

(iv) Interrogatory No. 12: Tax Indenl1ity Agreement

Tax indemnity agreements are commonly used in leveraged leasing transactions. Since
such agreements are normally used in leveraged leasing transactions, both parties (through their
counsel) would likely have expected the closing documents to include a tax indemnity
agreement. The Tax Indemnity Agreement is a contract between two unrelated, adverse parties.
As is the case with all contracts, the purpose of the'contract is to set forth the terms of the
paities' agreement with respect to the matters described in the contract. Thus, the "reasons for
entering the agreement" can best be understood by examining the terms of the Agreement. The
Agreement is a thirty-page document. Since Con Edison has produced a copy of the Tax
Indemnity Agreement, and the burden of summarizing the terms of this agreement would be
"substantially the same" for Con Edison as it would be for the United States, Con Edison has
provided a complete response to this Interrogatory. See RCFC 33(d).

(1') ¡'iierrogaiory No. ¡ 4: Idemtfy Oulside Consullanls

The United States' claim that Con Edison has failed to identify "all advisors consulted
with respect to the RoCa3" transaction is not correct. Con Edison wishes to make clear that it
has identified all of its consultants with respect to the RoCa3 investment. Furthermore, in
response to IntelTogatory No.7, Con Edison has provided all non-piivileged cOlTespondence
with siich consultants in its possession regarding the due diligence review of the transaction.

In response to IntelTogatory No. 14, Con Edison identified Cornerstone as "the outside
consultant" who helped Con Edison "locate" the RoCa3 investment. Con Edison did not retain
any other consultants with respect to locating the RoCa3 investment. Cornerstone also located
the other leasing investments identified in response to Interrogatory No.2. No other consultants
were retained in the process of locating those investments.

As for non-leasing investments, Con Edison previously identified International Energy

Partners as an outside consultant which helped to locate infrastructure investments. International
Energy Partners was responsible for locating the Genor investment, which was Con Edison
Development's first non-leasing infrastructure investment. We have previously provided you
with extensive material regarding International Energy Parners. See PF004426-44. This
material identified potential infrastructure investments, including the Genor project, and
described the merits of those projects.

In addition, Con Edison has provided extensive information regarding its plans for other

non-leasing investments. This material includes, but is not limited to:

· all Minutes of Board of Trustee meetings in 1996 through 1998, see, e.g.,


Case 1:06-cv-00305-MBH Document 22-6 Filed 04/04/2007 Page 29 of 34

Mayer, Brown, Rowe & Maw LLP

David N. Geier
December 2 i, 2006
Page 5

· extensive and detailed business plans, highlighting potential investments, see,

e.g., PF6438-89;

· reports to the Board of Trustees and other status repoits, set', e.g., PF6295-300;


· numerous'

presentations to the Board of

Trustees, see, e.g., PF4223-43.

Two other early infrastructure investments highlighted in these materials were the Ada
and Carson projects. See, e.g., PF6295-300. Both of these investments were located by Delta