Summary
CMS Energy Corporation (CMS) is reporting on a significant legal development concerning its wholly-owned subsidiary, CMS Marketing Services and Trading Company (CMS MST). Quicksilver Resources Inc. had sued CMS MST for $126 million related to an alleged breach of a 1999 natural gas purchase contract. While a jury initially awarded Quicksilver $10 million in punitive damages, finding a breach and fraud, they awarded zero compensatory damages. Following the jury's verdict, the trial court vacated the punitive damages award. However, it ordered the contract to be rescinded prospectively from the judgment date forward. This rescission will necessitate a charge of approximately $24 million (net of tax) in the second quarter of 2007, as a previously recorded price risk management asset related to this contract is no longer realizable. CMS Energy intends to contest this ruling through further legal action.
Key Highlights
- 1CMS Energy's subsidiary, CMS MST, was involved in a legal dispute with Quicksilver Resources Inc. over a natural gas purchase contract.
- 2A jury awarded Quicksilver $10 million in punitive damages but zero compensatory damages, finding CMS MST breached the contract and committed fraud.
- 3The trial court vacated the punitive damages award.
- 4The court ordered the contract to be rescinded prospectively from the judgment date forward.
- 5CMS Energy will record a charge of approximately $24 million (net of tax) in Q2 2007 due to the contract rescission.
- 6This charge relates to a previously recognized unrealizable price risk management asset.
- 7CMS Energy plans to seek reconsideration of the ruling and potentially appeal to the Texas Court of Appeals.