Federal racketeering claims dismissed

David Strow

Tuesday, Dec. 19, 2000 | 11:31 a.m.

A federal judge in Phoenix has dismissed federal racketeering claims against Southwest Gas Corp. of Las Vegas by a failed suitor.

The racketeering charges were first leveled by Southern Union Co. of Austin, Texas, against Southwest and ONEOK Inc. of Tulsa, Okla., the one-time chosen merger partner of Southwest. In a ruling issued Friday, Judge Roslyn Silver ruled that Southern Union could not proceed with allegations under the Federal Racketeer Influenced and Corrupt Organizations Act, as those claims were barred by federal securities law in conjunction with fraud claims.

However, Silver did not dismiss Southern Union's charges under a state racketeering law, or its fraud claims against both companies. Southern Union is demanding at least $750 million in damages, though federal RICO law could have given Southern Union triple damages, had it prevailed.

The Southern Union lawsuit, first filed in July 1999, eventually helped bring down Southwest's plans to be acquired by ONEOK for $1.8 billion. In that lawsuit, Southern Union alleged that ONEOK and Southwest conspired with several Arizona utility regulators to derail Southern Union's attempts at a hostile takeover of Southwest. Southern Union had offered $3.50 per share more for Southwest than ONEOK, but Southwest's board rejected its offer, expressing concerns that Southern Union would be unable to get regulatory approval.

Southern Union's allegations led to investigations by federal and state law enforcement officials and to repeated delays in the Arizona regulatory process, as Arizona Corporation Commission Chairman Carl Kunasek expressed growing concern about the activities of ONEOK and of ACC member Jim Irvin. Citing Southwest's legal liabilities if the lawsuit succeeded, ONEOK called off the Southwest merger in January.

Southwest sued just days later, accusing ONEOK of regulatory manipulation in Arizona. ONEOK retaliated with a separate lawsuit against Southwest, claiming Southwest knew that the ONEOK application would run into difficulty in Arizona, but withheld the information from ONEOK in hopes of drawing a higher offer.

Southwest and ONEOK have also each separately sued Southern Union, each claiming that Southern Union intentionally interfered with their plans to merge. All of the lawsuits are still pending.

Despite Friday's dismissal of federal RICO claims, Southern Union says it will continue to vigorously pursue its remaining claims against both companies.

"From Southern Union's point of view, settlement is not an option," said Dennis Morgan, Southern Union's senior vice president of legal. "In no way (does the dismissal) affect our intention to see this case to trial."

Morgan said the case could go to trial as early as late 2001.