Free Motion for Issuance of Letters Rogatory - District Court of Federal Claims - federal

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EXHIBIT 2

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS

CONSOLIDATED EDISON COMPANY OF NEW YORK, INC. & SUBSIDIARIES, Plaintiff, v. THE UNITED STATES, Defendant.

) ) ) ) ) ) ) ) ) ) )

No. 06-305 T Judge Marian Blank Horn

REQUEST FOR INTERNATIONAL JUDICIAL ASSISTANCE PURSUANT TO THE HAGUE CONVENTION OF 18 MARCH 1970 ON THE TAKING OF EVIDENCE ABROAD IN CIVIL OR COMMERCIAL MATTERS 1. Sender: Requesting Judicial Authority United States Court of Federal Claims 717 Madison Place, NW Washington, DC 20005 United States of America 2. Recipient: Central Authority of England The Senior Master of the Supreme Court of Judicature (Queen's Bench Division) Royal Courts of Justice Strand London WC2A 2LL, United Kingdom 3. Person to Whom the Executed Request is to be Returned David N. Geier U.S. Department of Justice, Tax Division 555 4th St. NW JCB Room 7919 Washington DC 20001

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IN CONFORMITY WITH ARTICLE 3 OF THE CONVENTION, THE UNDERSIGNED APPLICANT HAS THE HONOR TO SUBMIT THE FOLLOWING REQUEST: 4. Requesting Judicial Authority United States Court of Federal Claims 717 Madison Place, NW Washington, DC 20005 United States of America 5. To the Competent Authority of the United Kingdom: The Senior Master of the Supreme Court of Judicature (Queen's Bench Division) Royal Courts of Justice Strand London WC2A 2LL, United Kingdom 6. Case Information: Consolidated Edison Company of New York, Inc. & Subsidiaries v. The United States, Case No. 06-305 T (U.S. Court of Federal Claims) 7. Names and Addresses Parties and Their Representatives: Plaintiff: Consolidated Edison Company of New York, Inc. & Subsidiaries (hereinafter collectively "Con Ed") Thomas C. Durham Nicole Bielawski MAYER, BROWN, ROWE & MAW LLP 71 South Wacker Dr. Chicago, IL 60606 The United States of America David Geier Attorney of Record U.S. Department of Justice, Tax Division 555 4th St. NW JCB Room 7919 Washington, DC 20001 202-616-3448

Represented by:

Defendant: Represented by:

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Eileen J. O'Connor Assistant Attorney General David Gustafson Chief, Court of Federal Claims Section Steven I. Frahm Assistant Chief, Court of Federal Claims Section Joseph A. Sergi Trial Attorney James E. Weaver Trial Attorney Adam R. Smart Trial Attorney U.S. Department of Justice, Tax Division 8. Nature and Purpose of Proceedings and Summary of Facts There is currently pending in the United States Court of Federal Claims a suit captioned Consolidated Edison Company of New York, Inc. & Subsidiaries v. United States, No. 06-305 T, in which the plaintiff, "Con Ed," seeks a refund of federal income taxes paid to the United States. The fundamental issue in a tax refund suit is whether the taxpayer can establish that it has overpaid its taxes for the periods in suit. See Lewis v. Reynolds, 284 U.S. 281 (1932); Dysart v. United States, 169 Ct. Cl. 276, 340 F.2d 624 (1965). In this case, plaintiff participated in a lease-in/lease-out ("LILO") transaction involving a power station (the "RoCa3" facility owned by South Holland Electric (N.V. Electriciteitsbedrifj Zuid-Holland) (hereinafter "EZH")) located in the Netherlands. The specific substantive issue raised in this refund suit is whether plaintiff is entitled to deductions for rent, interest, and transaction costs in connection with the LILO to reduce its 1997 federal income tax liability. Because the counter-party to the LILO shelter, as well as third party consultants and banks involved are located in foreign countries, including yours, the United States requests the assistance of this Court to obtain discovery from foreign entities in its jurisdiction.

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The Transaction The United States' position is that Con Ed, a United States taxpayer, through a subsidiary, purported to lease property from its owner, EZH, under a head lease and simultaneously purported to lease the property back to EZH under a sublease. As is typical in a LILO transaction, the counterparty, EZH, is a foreign entity that pays no taxes in the United States. EZH is unable to claim federal income tax benefits, like depreciation, associated with its ownership of the RoCa3 facility. Immediately after the transaction was entered into, and continuing to date, EZH or its successors (including E.On Benelux Generation N.V., a subsidiary of E.On Energie A.G.) have continued to operate the facility and have retained all of the benefits and burdens associated with its use and ownership. For its part, Con Ed claimed rent and interest deductions associated with the purported head lease. According to the LILO documents provided to the United States by Con Ed, the United States contends that (1) a foreign bank, Hollandsche Bank-Unie N.V. ("HBU") purported to make a non-recourse loan to Con Ed to finance the head lease payments, (2) EZH's sublease rent payments are essentially identical in timing and amount to Con Ed's loan payments, (3) the loan proceeds were not paid to EZH but rather were held by ABN AMRO Bank N.V. ("ABN AMRO"), the parent bank of HBU, and used to satisfy the identical owner rent payments from EZH and Con Ed's purported loan repayments to HBU. Further, other financial entities, such as Credit Suisse Financial Products, Credit Suisse First Boston (collectively "Credit Suisse"), and Bayerische Landesbank A.G., were also involved in the financing aspects of the LILO shelter transaction. The circular financing arrangement among Con Ed, EZH and the foreign banks virtually ensured that (1) neither Con Ed nor EZH will need to use their own funds to satisfy their respective obligations under the operative

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documents (save for the fees and other costs paid by the taxpayer in connection with the transaction); and (2) EZH will retain dominion and control over the subject property. It is the United States' position that the tax deductions and losses claimed by Con Ed in connection with the LILO shelter transaction are improper and that Con Ed will not be able to prove it is entitled to a refund because: · Con Ed did not acquire a genuine leasehold interest in property in 1997 when it participated in the LILO; Con Ed did not incur a genuine debt obligation in connection with the LILO; The LILO tax shelter transaction and components thereof lacked economic substance and/or constitute a sham; The tax deductions fail when the step transaction doctrine is applied and the steps which comprise the tax shelter are collapsed and then viewed as a single transaction; Con Ed is not entitled to an interest expense deduction with respect to its "non-recourse loan," because such loan does not result in a use of the loan proceeds by Con Ed nor does it constitute a true forbearance by the lender; and The LILO shelter here at issue creates, at most, a contingent future leasehold interest not entitling Con Ed to any present deductions on account thereof.

· ·

·

·

·

In short, the United States contends that other than the execution of paper and the payment of fees, nothing happens. The United States has requested information about this LILO transaction from Con Ed directly. Con Ed has represented that information about the LILO transaction is held by third parties involved in the LILO transaction, some of whom are identified in this Letter of Request. The information being sought goes to the substance and operation of the LILO transaction at issue in the instant case, including, among other things, the financing arrangement, the counter-party's treatment of the transaction, and any due diligence performed in anticipation of the transaction.

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This Court considers that it is necessary in the interest of justice that documentary evidence be obtained for use at trial in this case from several of the LILO transaction participants or their successors in interest, namely Credit Suisse Financial Products, Credit Suisse First Boston, and Standard & Poor's, or their respective successors in interest. 9. Evidence to Be Obtained or Other Judicial Act to Be Performed a. Credit Suisse Financial Products

This Court respectfully requests that Credit Suisse Financial Products, whose business address is 1 Cabot Sq., 4th Floor, London, E14 4QJ, The United Kingdom, be requested to produce the documents identified in Exhibit A attached hereto, copies of which should be provided to the attorneys for the parties to this litigation. b. Credit Suisse First Boston Ltd.

This Court respectfully requests that Credit Suisse First Boston Ltd., whose business address is 1 Cabot Sq., 4th Floor, London, E14 4QJ, The United Kingdom, be requested to produce the documents identified in Exhibit B attached hereto, copies of which should be provided to the attorneys for the parties to this litigation. c. Standard & Poor's

This Court respectfully requests that Standard & Poor's, whose business address is Garden House, 18 Finsbury Circus, London, EC2M 7BP, The United Kingdom, be requested to produce the documents identified in Exhibit C attached hereto, copies of which should be provided to the attorneys for the parties to this litigation.

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10. Procedural Requests This Court respectfully requests that counsel for plaintiff and defendant identified above be notified of the time and place of the execution or executions of the Request, and that attendance by representatives of the parties be permitted at such execution or executions. In the event that the evidence sought cannot be taken in the manner requested, it is to be taken in the manner as provided by local law. 11. Reimbursement: The United States is prepared to reimburse your Court for all costs incurred in executing the instant request. The courts of the United States are authorized by law to extend similar assistance to the tribunals of the United Kingdom and will gladly reciprocate the courtesies shown by the courts of the United Kingdom. The Court extends to the judicial authorities of the United Kingdom the assurances of its highest considerations. ____________________________________ MARIAN BLANK HORN Judge United States Court of Federal Claims Dated: __________________________ SEAL

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EXHIBIT A

2375189.1

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EXHIBIT A DOCUMENTS TO BE PRODUCED BY CREDIT SUISSE FINANCIAL PRODUCTS DEFINITIONS & INSTRUCTIONS A. "Document," "record" and "material" include any written, printed, typed, electronic or graphic matter of any kind or nature. Any draft or non-identical copy constitutes a separate document for purposes of these requests. The terms shall be construed to include, but shall not be limited to, correspondence, electronic mail, notes, notations, contracts, brochures, agreements, deeds, leases, letters, memoranda, checks, bank statements, reports, analyses, projections, studies, records, corporate minutes, financial statements, financial records, accounting or audit workpapers (including permanent workpapers), spreadsheets, transcripts, recordings, and all other types of written or documentary materials. B. Any copy of a document that varies in any way from the original or from any other copy of the document, whether by reason of handwritten or other notation or any omission, shall constitute a separate document and must be produced. Each document is to be produced in its entirety, without abbreviation or expurgation, and the person who made the notation identified. C. If any documents are withheld under a claim of privilege, furnish a list identifying each document for which a privilege is claimed, together with the following information and sufficient details so as to permit a court to adjudicate the validity of the claim of privilege: date, sender, recipient, type (e.g., letter, memorandum, telegram, chart, photograph, etc.), subject matter of the document, the basis on which a privilege is claimed, and the paragraph or paragraphs of this request to which the document responds. D. If any document that would have been responsive to these requests no longer exists, please state the following for each document: the date of destruction, the reason for destruction, and the person(s) responsible for the decision to destroy the document(s) and for the actual destruction of the documents. E. Responses to these requests should be made in a manner consistent with Fed. R. Evid. 902(12), Certified Foreign Records of Regularly Conducted Activity. F. The term "Con Ed" shall refer to Consolidated Edison Company of New York, Inc. & Subsidiaries, and affiliated companies, including, but not limited to, Consolidated Edison Development, Inc., Consolidated Edison Leasing, Inc., and Consolidated Edison, Inc.

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G. The term "Banc One" shall refer to Banc One Leasing Corp. its related affiliates, subsidiaries, successors, and assigns, including, but not limited to, and any person, officer, director, accountant, lawyer, agent, or entity acting on behalf of any of the foregoing organizations. H. The term "EZH" shall refer to N.V. Electriciteitsbedrifj Zuid-Holland, its related affiliates, subsidiaries, successors, and assigns, including, but not limited to, Preussen Elektra A.G. and E.ON Benelux Generation N.V., and any person, officer, director, accountant, lawyer, agent, or entity acting on behalf of any of the foregoing organizations. I. The term "RoCa3" shall refer to the gas fired CHP facility located in the Netherlands on the border between Rotterdam and Capelle aan den IJessel, constituting the third unit alongside two previously built units, which was owned by EZH on or about December 15, 1997. J. The term "HBU" shall refer to Hollandsche Bank-Unie N.V., its related affiliates, subsidiaries, successors, and assigns, and any person, officer, director, accountant, lawyer, agent, or entity acting on behalf of any of the foregoing organizations. K. The term "ABN AMRO" shall refer to ABN AMRO Bank N.V., its related affiliates, subsidiaries, successors, and assigns, and any person, officer, director, accountant, lawyer, agent, or entity acting on behalf of any of the foregoing organizations. L. The term "Tauw" shall refer to Tauw Milieu B.V., its related affiliates, subsidiaries, successors, and assigns, including, but not limited to, Tauw B.V., and any person, officer, director, accountant, lawyer, agent, or entity acting on behalf of any of the foregoing organizations. M. The term "CSFP" shall refer to Credit Suisse Financial Products, its related affiliates, subsidiaries, successors, and assigns, and any person, officer, director, accountant, lawyer, agent, or entity acting on behalf of any of the foregoing organizations. N. The term "Lease Transaction" shall refer to the series of transactions pertaining to the RoCa3 facility as described in paragraphs 61-77, inclusive of the complaint attached hereto as Exhibit A-1. O. The term "Lease Transaction Participants" refers to the following entities: ABN AMRO Bank N.V.; Hollandsche Bank-Unie N.V.; EZH; Con Ed; Credit Suisse; Bayerische Landesbank; Wilmington Trust Co.; ABB Leasing GmbH, and any and all affiliated businesses, successors, assigns, predecessor or successor businesses, and any person, officer, director, accountant, lawyer, agent, or entity acting on behalf of any of the foregoing organizations.
Exhibit A

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P. The term "Capstar" refers to Capstar Partners L.L.C., its related affiliates, subsidiaries, successors, and assigns, and any person, officer, director, member, accountant, lawyer, agent, or entity acting on behalf of any of the foregoing organizations. Q. The term "Cornerstone" refers to Cornerstone Financial Advisors L.P., its related affiliates, subsidiaries, successors, and assigns, and any person, officer, partner, accountant, lawyer, agent, or entity acting on behalf of any of the foregoing organizations. DOCUMENTS TO BE PRODUCED 1. The documents in the files of CSFP that discuss the Lease Transaction.

2. The documents in the files of CSFP that discuss or pertain to its solicitation as a potential participant in the Lease Transaction. 3. The documents in the files of CSFP that discuss CSFP's decision to participate in the Lease Transaction. 4. The documents in the files of CSFP that contain the analyses made in conjunction with the decision to participate in the Lease Transaction. 5. The documents in the files of CSFP that discuss the negotiations performed with respect to CSFP's role in the Lease Transaction or the purchase or issuance of US treasury strips in connection therewith. 6. The documents in the files of CSFP that describe or discuss the lease options the Lease Transaction provides to Con Ed and/or EZH, including documents that address the feasibility and/or likelihood of exercise of those options.

7. The documents in the files of CSFP discussing any negotiations performed with respect to the terms of the Lease Transaction. 8. The documents in the files of CSFP evidencing the transfer of any funds by or to any of the Lease Transaction Participants in connection with the Lease Transaction or the purchase of US Treasury strips in connection therewith. 3

Exhibit A

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9. The documents in the files of CSFP containing or discussing Credit Suisse's analysis of appropriate market rates for the various loans, debt defeasance deposits, and collateral purportedly used in the Lease Transaction as identified in the correspondence Bates Nos. PF00613031, PF006132-33, PF006134-35, PF006136-37, and PF006138-39, attached hereto as Exhibits A-2, A-3, A-4, A-5, and A-6 respectively, including, but not limited to, how the percentage rates set forth in each of those documents was selected. 10. The drafts and underlying work papers for the opinion letters referred to in paragraph 9 in the files of CSFP. COMMUNICATIONS 11. The letters, memoranda, notes, e-mails, and other written communication in the files of CSFP exchanged by and/or between CSFP and any of the Lease Transaction Participants (or their affiliates, assigns, or successors in interest) in connection with the Lease Transaction or the US Treasury Strips purchased or issued in connection therewith. 12. The letters, memoranda, notes, e-mails, and other written communication in the files of CSFP exchanged by and/or between CSFP and Capstar in connection with the Lease Transaction or the US Treasury Strips purchased or issued in connection therewith. 13. The letters, memoranda, notes, e-mails, and other written communication in the files of CSFP exchanged by and/or between CSFP and Cornerstone in connection with the Lease Transaction or the US Treasury Strips purchased or issued in connection therewith. 14. The letters, memoranda, notes, e-mails, and other written communication in the files of CSFP exchanged by and/or between CSFP and Banc One in connection with the lease transaction between Banc One and EZH for the undivided interest in the RoCa3 facility not involved in the Lease Transaction, or the US Treasury Strips purchased or issued in connection therewith. ACCOUNT INFORMATION 15. The documents in the files of CSFP discussing or referring to Account Number 2F4A2, as referred to in Bates Nos. PF002841-2843, attached hereto as Exhibit A-7, as it related to the Lease Transaction.

Exhibit A

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TREASURY STRIPS 16. The documents in the files of CSFP discussing or pertaining to the following US treasury strip coupons identified in documents identified as Bates Nos. US01835, US01836, and US01837-US01840, attached hereto as Exhibits A-8, A-9, and A-10: US treasury strip coupons 11/15/2011, CUSIP 912833JX9; US treasury strip coupon 11/15/2016, CUSIP 912833KK5; US treasury strip coupon 2/15/2017, CUSIP 912833KL3; US treasury strip coupon 5/15/2017, CUSIP 912833KM1; US treasury strip coupon 8/15/2017, CUSIP 912833KN9; US treasury strip coupon 2/15/2018, CUSIP 912833KQ2; US treasury strip coupon 5/15/2018, CUSIP 912833KRO; US treasury strip coupon 8/15/2018, CUSIP 912833KS8; and US treasury strip coupon 11/15/2018, CUSIP 912833KT6, including, but not limited to all documents pertaining to the purchase, issuance, and ownership of the treasury strips, the specific maturity dates, amounts, and percentages selected for each treasury strip, and the role of the treasury strips in the Lease Transaction and/or any substantially similar transaction involving the RoCa3 facility to which Banc One was a party. 17. The documents in the files of CSFP discussing or pertaining to the account or accounts containing the US treasury strip coupons identified in paragraph 16 SIMILAR TRANSACTIONS 18. The documents within the files of CSFP that discuss or pertain to any of the following lease transactions considered by the plaintiff, Con Ed, between 1997 and 2001, including the documents discussing the solicitation of CSFP as a potential participant in such a transaction and the documents reflecting CSFP's consideration of such transactions and decision to participate in such transactions: a. b. c. d.
Exhibit A

NUON lease (Netherlands); MEGA Gas and Thermal Distribution lease/leaseback (Netherlands); EPON lease (Netherlands); ENECO lease (Netherlands); 5

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e. f. g. h. i. j. k. l. m. n. o. p. q. r. s. t. u. v.

ENN lease (Nethelands); ENW gas lease (Netherlands); MCN lease (United States); ELECTRABEL power plant lease/leaseback (Belgium); Diefland gas and thermal distribution lease/leaseback (Netherlands); Linz power plant lease/leaseback (Austria); UNA power plant lease/leaseback (Netherlands); EG Laufenburg lease/leaseback (Switzerland); Humber power lease/leaseback (United Kingdom); EWZ electric transmission grid lease/leaseback (Switzerland); ESAG lease (Germany); REMU lease (Netherlands); DELTA lease (Netherlands); ZETA/TEL lease (Netherlands); EDON lease (Netherlands); DEW lease (Germany); VASA lease (Germany); and SWISCO lease (Switzerland).

19. The documents in the files of CSFP that discuss any other transaction similar to the Lease Transaction and/or the transaction described in Revenue Ruling 2002-69, 2002-2 C.B. 760 (copy attached hereto as Exhibit A-11), from 1996 through 2001, including the documents discussing the solicitation of CSFP as a potential participant in such a transaction and the documents reflecting CSFP's consideration of such transactions and decision to participate in such transactions. CONTINUING COMMUNICATIONS 20. The letters, memoranda, notes, e-mails, and other written communication in the files of CSFP exchanged by and/or between CSFP and E.On Benelux Generation N.V., E.On Energie A.G., EZH, Wilmington Trust Company or representatives thereof, discussing the 6

Exhibit A

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acquisition of EZH by Preussen Elektra AG in connection with the Lease Transaction or the US treasury strip coupons identified in paragraph 16 above.

Exhibit A

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EXHIBIT A-1

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IN THE UNITED STATES COURT OF FEDERAL CLAIMS
)

FILED APR 19 -

CONSOLIDATED EDISON COMPANY OF NEW YORK, INC. & SUBSIDIARIES,

)

)
)

)

Plaintiff,
v.

t06-305 T
,i' No.

)

)
)

)

THE UNITED STATES,

)
)

Defendant.

) )

COMPLAINT
Plaintiff, Consolidated Edison Company of New York, Inc. & Subsidiaries, brings this
action for a refund of federal taxes paid in connection with the Internal Revenue Service's

proposed adjustments to its federal tax return for the taxable year ending December 31, 1997,
The adjustments ar related to Plaintiffs investment in an electric generation facility located

outside Rotterdam, The Netherlands.
In support of its refund claim, Plaintiff alleges as follows:

JUSDICTION AND SUMRY OF ACTION
I. Plaintiff, Consolidated Edison Company of New York, Inc. & Subsidiares ("Con

Edison NY"), brings this refund

action, founded upon the Internal Revenue Code of 1986, for the

recovery of federal income tax paid by Plaintiff for the taxable year ended December 31, 1997
("the 1997 taxable year").

2. Defendant is the United States of America.

3. This Court has jursdiction by reason of 28 U.S.C. §§ l346a)(l) and 1491(a)(I)

and 26 U.S.c. § 7422.

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4. On or before September 9, 1998, Con Edison NY filed a timely federal
consolidated income tax return for the 1997 taxable year with the Internal Revenue Service

("RS") and timely paid income taxes in the amount of $291,003,408.

5. Con Edison NY's name, address, and identification number appearng on the
1997 tax return ar: Consolidated Edison Company of New York, Inc. & Subsidiares; 4 Irving

Place, Room 615-S, New York, New York, 10003; and 13-5009340, respectively.
6. During the 1997 taxable year, Con Edison NY, through its subsidiares, made an

investment in an electric generation plant in The Netherlands. The plant is generally known as
"RoCa3" and is owned by N.V. Electriciteitsbedrijf Zuid-Holland ("South Holland Electric").

This transaction is hereinafter referred to as the "RoCa3 Investment."
7. On its 1997 tax return, Con Edison NY reported rental income with respect to the

RoCa3 Investment and deducted rental expense, amortization of expenses, and . interest expense

relating to the property and indebtedness incurred in the RoCa3 Investment, for a net loss of
$937,331.
8. The IRS, during a routine audit of Con Edison NY's tax return for the 1997

taxable year, disputed Con Edison NY's tax treatment of the RoCa3 Investment.
9. On or about September 15,2005, the IRS issued a Notice of Prposed Adjustment

to Con Edison NY, proposing additional federal income of $937,331 for the 1997 taable year

with respect to the RoCa3 Investment.

10. The IRS's proposed adjustments resulted in a tax increase of $328,066, increasing Con Edison NY's federal income tax liability for the 1997 taxable year from $291,003,408 to
$291,331,474.

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