lighting the way · 2021. 2. 25. · • lno sued the sellers for breach of contract • sellers...

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© 2019 Eversheds Sutherland (US) LLP

Third annual review of developments in energy contracting

Lighting the way

February 25, 2021James OrrPartner

Thomas WarrenPartner

Eversheds Sutherland PRIVILEGED AND CONFIDENTIALEversheds Sutherland PRIVILEGED AND CONFIDENTIAL

Presenters

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James OrrPartner

Thomas WarrenPartner

Eversheds Sutherland PRIVILEGED AND CONFIDENTIALEversheds Sutherland PRIVILEGED AND CONFIDENTIAL

Overview

3

Email Exchanges and Contracts

Nonsignatories Compelling Arbitration

Interpretation Principles

Degrees of Fault

Eversheds SutherlandEversheds Sutherland

Email Exchanges and ContractsThomas Warren

Eversheds Sutherland PRIVILEGED AND CONFIDENTIALEversheds Sutherland

Copano Energy, LLV v. Bujnoch, 539 S.W.3d 721 (Tex. 2020)Email Exchanges and Contracts

─ Issue:

• Did the parties’ emails form a contract that satisfies the statute of frauds?

5


Email Exchanges and Contracts-Copano Energy

─ Facts

• 2011: Landowners granted easements to Copano for construction, operation, and maintenance of a pipeline

• December 2012: Copano (through James Sanford) approached Landowners about a second easement to construct another pipeline

• Sanford contacted attorney representing Landowners (Schwartz) to discuss proposed second easement

• A series of emails followed



─ Emails – Dec. 6 & 7

• Sanford (Copano) contacted Schwartz (Landowners) to discuss proposed easement at December 11 meeting

• Schwartz’s Secretary emailed a series of questions to Sanford inquiring about specifics of the NGL line (size, type of gas, etc.); Sanford responded

• All of Sanford’s emails use the subject line “Meeting with Schwartz”

• Schwartz was not copied on any of the emails

• No indication whether December 11 meeting occurred

7



─ Emails — Jan. 30

• Sanford emailed Schwartz and another attorney for the Landowners stating that pursuant to prior conversation, Copano agreed to pay $70/foot for the second 24-inch line

• Schwartz responded: "In reliance on this representation we accept your offer"

8



─ February Letters• Copano (through Thomas Goolsby) sent letters to the

Landowners offering to amend the original pipeline easement per an attached amendment and amended plat.

• The letters offered the Landowners $15-$25/foot (vs. $70/foot offered in Jan. 30 email)

• February 12: Sanford sent an email to Schwartz offering to pay one Landowner, Transportation, Inc. $88/foot (vs. $15/foot offered in a Feb. 22 letter)

• Schwartz’s secretary emailed Sanford revisions made to the amendment of row agreement for execution by the Landowners

• Sanford responded, “I am fine with these changes”

9



─ March Correspondence • Copano (through Brent Eubank) sent an email to Schwartz proposing to pay $20 to $40/foot for the easement

• Schwartz emailed Sanford: “THIS IS NOT OUR DEAL[.] WHAT IS GOING ON?”

• Sanford responded that he understood this was not the deal, that he thought they could start closing easements at the end of March, and that "[o]ur deal still stands."

10



─ Litigation

• Landowners sued Copano for breach of contract

• Alleged contract to sell an easement to the Landowners for $70/foot and to Transportation Equipment for $88/foot

• Copano won summary judgment because statute of frauds barred contract claim

• The Court of Appeals reversed

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─ Law • “To satisfy the statute of frauds, there must be a written

memorandum which is complete within itself in every material detail, and which contains all of the essential elements of the agreement, so that the contract can be ascertained from the writings without resorting to oral testimony.”

• “[A] court may determine, as a matter of law, that multiple documents comprise a written contract.”

─ Argument• Landowners argued that the January 30 emails where Copano

“agreed to pay [Landowners] $70.00 per foot” and Schwartz responded, “In reliance on this representation we accept your offer” established a contract and that the details of the terms were in the December 7 emails.

12



─ Holding

• The parties’ emails did not satisfy the statute of frauds and therefore did not establish an enforceable contract

13



“E-mail is a ubiquitous feature of modern life. It is used by nearly everyone for nearly every type of communication, from the flippantly inconsequential to the bindingly formal. When it is alleged that an e-mail amounts to a contract binding on the sender, the e-mail’s context must be carefully examined to determine whether it truly evidences the grave intent to be legally bound.”

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─ Reasoning • Neither the context nor their verbiage reflects an intent to bind Copano to easement terms stated in Dec. 7 emails

• Context—emails were part of a request to negotiate at a later meeting

• Schwartz was not copied on the emails

• Future-tense

• “Authorities in other jurisdictions uniformly [] disqualify writings which contain futuristic language as not confirmatory of a contract already in existence.”

• “The entire email thread anticipates a future, in-person meeting at which the terms Sanford’s emails describe might or might not actually be offered.”

15



─ Reasoning

• Cannot rely on parol evidence

• Later writings confirmed that the alleged agreement was never reached

16


− Practical Points

• Best practice is to execute a formal written contract

• If contract established via email, provide a “recap email”

• Provide all material terms and explicitly indicate offer and acceptance

• Have parties acknowledge that contract has been formed via email

• If no contract is intended, avoid language of offer and acceptance


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Chalker Energy Partners III, LLC v. Le Norman Operating, LLC, 595 S.W.3d 668 (Tex. 2020)

Email Exchanges and Contracts

─ Issue

• Did the parties’ email exchange constitute an enforceable contract?

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“Email can be a convenient way to reach an agreement, but it is also a distinctly conversational, informal medium. Hitting send may be deliberate; it may be hasty. And so in this brave new world, or at least this braver new world, we must decide whether an email exchange reflected the meeting of the minds required for a contract, given the nature of the transaction and the parties’ expressed contemplations. And we must begin to give certainty to this developing area of contract law.”

Email Exchanges and Contracts-Chalker Energy Partners

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─ Facts

• Landowners sought to sell their interests in hundreds of millions of dollars in some 70 oil and gas leases.

• Bidders were required to sign a Confidentiality Agreement and then given access to a virtual data room with information about the leases.

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─ Facts • The Confidentiality Agreement provided in part:

No Obligation. The Parties hereto understand that unless and until a definitive agreement has been executed and delivered, no contract or agreement providing for a transaction between the Parties shall be deemed to exist and neither Party will be under any legal obligation of any kind whatsoever with respect to such transaction by virtue of this or any written or oral expression thereof, except, in the case of this Agreement, for the matters specially agreed to herein. For purposes of this Agreement, the term “definitive agreement” does not include an executed letter of intent or any other preliminary written agreement or offer, unless specifically so designated in writing and executed by both Parties.

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─ Facts – Email Communications

• Le Norman Operating LLC (LNO) submitted a bid “subject to the execution of a mutually agreeable [PSA]”

• Sellers rejected the bid, and later they presented a counter offer

• Sellers responded with a counter proposal, the terms of which included, “Execution of the PSA on or before 11.30.12”

• Sellers voted to sell and informed LNO that they were “on board to deliver . . . Subject to a mutually agreeable PSA.”

• The parties worked on drafts of a PSA

• Meanwhile . . . a different bidder submitted an offer, the Sellers accepted the bid, and a PSA was executed

22



─ Litigation

• LNO sued the Sellers for breach of contract

• Sellers counterclaimed for breach of contract, among other things

• Trial court considered cross-motions for summary judgment, and granted the Sellers’ motion, finding that PSA was a condition precedent

• The Court of Appeals reversed because issues of fact existed

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─ Argument

• LNO argued that the emails raised a fact issue as to whether a definitive agreement, as required under the No Obligations Clause, existed.

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Email Exchanges and Contracts-Chalker Energy Partners─ Holding

• The parties’ email exchange did not form an enforceable contract.

─ Reasoning • Freedom of contract—parties can stipulate to the conditions upon which they will be bound

• A “definitive agreement” was a condition precedent to contract formation under the Confidentiality Agreement

• Parties greed that there was no contract “unless and until a definitive agreement has been executed and delivered”

• Sellers accepted LNO’s bid “subject to a mutually agreeable PSA”

25


Email Exchanges and Contracts-Chalker Energy Partners─ Reasoning

• Clause stated that “definitive agreement does not include an executed letter of intent or any other preliminary written agreement or offer, unless specifically so designated in writing and executed by both Parties.”

• Dictionary definitions • Preliminary agreement—precontractual understanding in which two commercial parties allocate their contributions to an undertaking but do not specify all the important terms of the deal.

• Definitive—to provide a final solution or to end a situation; authoritative and apparently exhaustive

26


Email Exchanges and Contracts-Chalker Energy Partners─ Reasoning

• Emails more akin to a preliminary agreement

• Parties’ dealings suggest they intended a more formalized document

• Both parties contemplated executing PSA

• Attempted to negotiate PSA

• An executed PSA was part of the terms offered by LNO

• LNO referred to its offer as a “base deal”

• Sellers’ acceptance made “subject to a mutually agreeable PSA”

• Absence of key terms 27


Perspective from the Court:

“If mere proposals that contemplate a later-executed PSA and the subsequent exchanging of unagreed-to drafts are sufficient to raise a fact question on the existence of a definitive agreement, No Obligation Clauses will be stripped of much of their meaning and utility. Even worse, these clauses would mislead parties operating under the assumption that they can freely engage in negotiations without binding themselves to proposals in an email exchange. By including the No Obligation Clause in the Confidentiality Agreement, the Sellers and LNO provided themselves with the freedom to negotiate without fear of being bound to a contract.The record here reflects that they were doing just that.”


28



─ Additional Argument • LNO argued that given that the No Obligation Clause created a

condition precedent to contract formation, there was a fact issue as to whether the Sellers waived that condition through their conduct.

─ Law on Waiver • “an intentional relinquishment of a known right or intentional

conduct inconsistent with claiming that right.”

─ Holding • No Waiver

29



─ Reasoning:

• LNO’s counter proposal was a continuation of earlier attempts to negotiate a sale

• Confidentiality Agreement provided that it would terminate after one year or on the date that the parties entered into a further written agreement

• Confidentiality Agreement also gave Sellers the right to “conduct the process relating to a possible transaction in any manner it deems appropriate or change the procedure for conducting that process.”

• No evidence of intentional relinquishment—Seller’s conduct was consistent with right to a definitive agreement

30


− Practical Considerations• Be aware if any “No Obligation” clause is in your agreements

• Pros of “No Obligation” clause • Gives sellers opportunity to obtain more favorable offer • Gives buyers a chance to back out if change mind• Ensures even after agreement in principle, parties have

opportunity to negotiate and agree to additional terms • “No Obligation” clause should be clear and unambiguous • Parties looking to enforce a “No Obligation” clause should

reiterate that the parties’ agreement is subject to the execution of a mutually agreeable PSA

• If initial agreement is reached, be prepared to draft PSA swiftly and hold other side accountable to timely respond


31



James Orr


GE Energy Power Conversion France SAS v. Outokumpu Stainless USA LLC etal., Case No. 18-1048, U.S. Supreme Court (June 2020)


33

─ Facts:• Outokumpu entered into contracts with F. L.

Industries for the construction of steel processing equipment at its steel plant.

• The contracts contained a list of subcontractors F. L. could use to supply components.

• Each contract required arbitration in Germany.


GE Energy Power Conversion France SAS v. Outokumpu Stainless USA LLC etal., Case No. 18-1048, U.S. Supreme Court (June 2020)


34

─ Facts:• F.L. Industries entered into a subcontract

with GE Energy for the provision of motors.

• GE Energy was on list of subcontractors.

• After the motors allegedly failed, Outokumpu sued GE Energy in Alabama state court.

• GE Energy removed case to federal court.

• GE Energy moved to compel arbitration, even though it was not a party to contract between Outokump and F.L. Industries.


Non-Signatories and Arbitration

35

─ District court granted motion to compel arbitration.

─ Eleventh Circuit reversed.

─ U.S. Supreme Court took case.

─ Issue: Can a nonsignatory to an international arbitration agreement enforce that arbitration agreement in U.S. courts?



36

─ Applicable Law:• The New York Convention:

• 1958 multilateral treaty addressing international arbitration.• Is silent on enforcement of arbitration agreements by

nonsignatories.

• Federal Arbitration Act (“FAA”): • Permits U.S. courts to apply state-law doctrines related to the

enforcement of arbitration agreements.

• Equitable Estoppel:• Precludes a party from asserting a right inconsistent with a

position previously taken to the prejudice of another acting in reliance thereon.

• In the arbitration context, allows non-signatories to compel arbitration where a signatory to the agreement must rely on the terms of that agreement in asserting its claims against the nonsignatory.


U.S. Supreme Court Decision

37

─ Held: Nonsignatories to an international arbitration agreement may compel arbitration of disputes arising under that agreement pursuant to state law equitable estoppel principles.

• The New York Convention and the principles of equitable estoppel do not conflict.

• The New York Convention’s silence (on enforceability by non-signatories) is dispositive here.

• Nothing in the New York Convention prohibits the application of domestic equitable estoppel doctrines.

• The Convention was drafted against the backdrop of domestic law -- it would be unnatural to read it to displace domestic doctrines.


U.S. Supreme Court Decision, continued

38

• The Convention contemplates using domestic doctrines to fill gaps in the Convention.

• The Court of Appeals wrongly decided the Convention limited enforcement of international arbitration agreements to signatories.


Next Steps

39

─ Remanded to the Eleventh Circuit to determine whether the nonsignatory could enforce the arbitration agreement under equitable estoppel principles.



40

─ Going forward:

• Nonsignatories may now have standing to enforce international arbitration agreements in U.S. Courts based on equitable estoppel principles.

• This aligns with U.S. domestic law under the FAA.

• Equitable estoppel inquiry is very fact specific. No bright line test.

Eversheds Sutherland PRIVILEGED AND CONFIDENTIAL

Practical Take-Aways

41

Good news: this brings the U.S. in line with widely held views on arbitration law.

A different decision would put international arbitration clauses on a

different level than domestic arbitration

clauses, thereby impacting parties’ desire to agree to international

arbitration.


Interpretation PrinciplesJames Orr


Endeavor Energy Resources, L.P. v. Energen Resources Corporation, No. 18-1187, 2020 WL 7413727 (Tex. 2020)


Issue

─ How to calculate the number of “unused days” permitted by a continuous-development clause, which requires the lessee to drill wells on an agreed schedule or its interest terminates.

“Continuous-development (or continuous-operations clauses) . . . ‘have become ubiquitous’ in oil and gas leases.”


Interpretation Principles—Endeavor Energy Resources

Facts

─ John Quinn (lessor) entered into an oil and gas lease with Endeavor (lessee), covering 11,300 acres.

─ Lease contained a “continuous-development clause”

This lease shall terminate . . . any time a subsequent well is not commenced within one hundred fifty (150) days from completion of a preceding well. . . . Lessee shall have the right to accumulate unused days in any 150-day term during the continuous development program in order to extend the next allowed 150-day term between the completion of one well and the drilling of a subsequent well.



Facts

─ So, to avoid termination of lease, Endeavor had to begin drilling a new well within 150 days after completion of the preceding well.

─ But if Endeavor finished a well “early” – in less than 150 days – then Endeavor could carry over the unused days and thereby extend the next 150-day term.



Facts

─ Endeavor drilled 12 wells

─ 310 days passed without Endeavor starting the next well

─ So Quinn then leased non-producing acreage to Energen

─ Ten days later (320 days after completing the 12th well) Endeavor began drilling



Litigation

─ Lawsuit between Energy and Endeavor

─ Both parties moved for summary judgment



Arguments

─ Energen• Lease automatically terminated due to delay • Unused days from any given 150-day term can be carried over only to the immediately following term

• Endeavor had 36 unused days from the preceding term. • So, Endeavor had to start drilling 13th well by 186 days after completion of 12th well.



Arguments

─ Endeavor • The lease did not terminate • Endeavor could accumulate unused days across multiple terms

• Endeavor had completed a lot of earlier wells in advance of their deadlines

• Endeavor had accumulated a total of 377 unused days to begin the next well



Litigation

─ Trial court ruled in Energen’s favor

• Lease terminated after 186 days

• Endeavor’s interest reverted to Quinn

• Quinn validly leased the property to Energen

─ The Court of Appeals affirmed

─ Supreme Court took case



Law

─ General Principles of Contract Interpretation Apply • The most important consideration is the agreement’s plain, grammatical language

• Determine objective meaning

─ When the contractual text alone is inconclusive, courts may consider additional facts and circumstances (e.g., commercial setting of negotiations)



Law

─ Ambiguous contracts • If after applying all relevant construction principles, a contract’s language is susceptible “to two or more reasonable interpretations,” then the agreement is ambiguous as a matter of law.

• In most cases, the meaning of an ambiguous contract must be determined by the jury – who can consider evidence of the parties’ subjective intent



Law

─ But oil and gas leases are subject to special contract construction rules.

─ One of those rules is that contractual language will not be held to automatically terminate a lease if the language is ambiguous.

─ Said another way, an oil and gas lease will not automatically terminate unless the termination language is clear and unequivocal.



Analysis

1. The Language

“Lessee shall have the right to accumulate unused days in any 150-day term during the continuous development program in order to extend the next allowed 150-day term between the completion of one well and the drilling of a subsequent well.”



Analysis

1. The Language • Energen’s Argument

• Lease addresses “right to accumulate unused days in any 150-day term”

• “any” is singular • Unused days can only come from the one immediately

preceding term, not from multiple terms • “next . . . term” is also singular

• Unused days extend only to the immediately following 150-day term

• So, banking unused days from multiple terms and adding them to other terms is not permitted.



Analysis

1. The Language • Endeavor’s Argument

• The question is whether unused days from one term to the next become part of the latter term.

• If they do, then such unused days may be carried forward across multiple terms because there will always be a “next” term into which unused days roll over.

• Contract permits unused days to roll over and “extend” the “next” term across multiple terms



Conclusion

─ Neither parties’ argument regarding “any 150-day term” and “next allowed 150-day term” is dispositive



Analysis

1. The Language (Part II) – “Lessee shall have the right to accumulate unused days . . .”

• Endeavor’s Argument • “accumulate” = right to compile over multiple periods • A one-time accrual is not an “accumulation”

• Energen’s Argument • Undue emphasis on “accumulate”• “accumulate”=increases in general whether gradual, sudden, incremental, or otherwise

• Court: neither argument carries the day



Conclusion

So, textual analysis inconclusive.



Analysis

2. Extrinsic Circumstances • Law

• When text is inconclusive, courts may consider extrinsic circumstances that shed light on objective meaning conveyed by the text.

• Courts can consider the particular business activity sought to be served.

• But such extrinsic evidence cannot be used to alter or add to contractual language.



Analysis

2. Extrinsic Circumstances • Endeavor’s Argument.

• Primary benefit of the bargain was the completion of a new well, on average every 150 days, while granting lessee flexibility in drilling schedule.

• If Endeavor banks unused days from multiple terms in order to take a long hiatus from drilling, Endeavor will still average one well every 150 days.

• Energen’s Argument. • Object of these clauses is to require that development efforts be continuous, with no gap.

• Designed to avoid excessively long gaps in drilling.


Conclusions

• “Both parties advance plausible commercial purposes, but . . . resolving this case based on what we think the parties meant to accomplish would impermissibly rewrite their agreement.”

• Because the agreement remains “reasonably susceptible to more than one meaning,” it is ambiguous




Analysis

2. Model continuous-development clauses • Energen argued:

• Secondary sources include examples of model clauses that explicitly allow banking of days, e.g.:

• “intervals between wells may be stacked . . . [and lessee] may add these time periods together . . . .”

• Here, no such language used. • Court: mere existence of model language the parties could have used does not mean they made conscious decision to reject such language.

• They also could have said “no banking of unused days allowed” if that’s what they meant.



Conclusion

─ Both interpretations reasonable.

─ Operative language is ambiguous.

─ In oil and gas lease, contractual language will not be held to automatically terminate a lease if the language is ambiguous.

─ Because the disputed provision was ambiguous, it could not operate to terminate the lease.

─ Reversed. Judgement for Endeavor.



Practical Considerations

Court closed with advice:

“Because ambiguities in continuous-development clauses are frequent, concerning the times at which wells must be commenced, great care should be exercised in drafting to avoid questions of whether the lessee has complied.”

─ Parties should be explicit about whether banking of unused days is allowed or not.


Walls v. Repsol Oil and Gas USA, LLC, No. 4:20-cv-00782, 2020 WL 5502151 (M.D. Pa. Sept. 11, 2020)


Facts (as alleged)

─ Landowners entered an oil and gas lease with Repsol

─ Repsol operated a natural gas production unit, pooling the lease’s property with neighboring lands

─ Repsol began constructing a pipeline on the Landowners’ property

─ Repsol and the Landowners began negotiating a “Pipeline Right of Way Agreement,” which would authorize the pipeline’s installation


Interpretation Principles—Repsol Oil and Gas

Facts (as alleged)

─ Landowners rejected Repsol’s offers

─ Negotiations terminated

─ Repsol built the pipeline anyway

─ The pipeline transported natural gas from production units outside the leased acreage and neighboring land



Litigation

─ Landowners sued Repsol

─ Sought order requiring Repsol to stop using pipeline to transport gas from property outside the leased acreage and non-neighboring lands



Analysis—The Lease’s Language

─ Lease granted Repsol the rights of:• “Drilling, producing, and otherwise operating for oil and gas and their constituents, including the right to conduct geophysical, seismic and other exploratory tests, and of laying pipe lines, and building tanks, roads, stations, and electric power lines, houses for valves, meters, regulators, and other appliances, with all other rights and privileges necessary, incident to or convenient for the operation of this land alone and cojointly with neighboring lands.”



Issue─ Does the language in last clause – “operation of this land

alone or cojointly with the neighboring lands” – restrict preceding language regarding more specific rights

─ Lease grants Repsol specific right of “laying pipe line”• But does that right extend only to pipeline “necessary, incident to or convenient for” … the operation of the leased land or neighboring land?

• Or can Repsol transport gas from distant production units located outside the leased acreage and outside non-neighboring lands?



Analysis—The Lease’s Language─ Court must examine contract language

─ If contractual language is clear, court must determine parties’ intent from the document itself

─ If terms of contract are unambiguous, no further evidence of intent of parties is admissible



Analysis—The Lease’s Language─ Lease expressly granted the right to perform a set number

of tasks, including “laying pipe lines”

─ Beyond those enumerated rights, lease gave Repsol “all other rights and privileges necessary, incident to or convenient for” the operation of the lease’s acreage and neighboring lands

─ So, only the rights and privileges not enumerated in the lease must be “necessary, incident to or convenient for” the operation of the land



Analysis—The Lease’s Language─ If the parties intended all rights and privileges to be limited,

there would be no reason to enumerate any rights

─ Lease is clear that some rights were intended to be limited, while others were not

─ Comma separated enumerated rights from the more restrictive “other rights” – confirming distinction between the two



Holding─ Repsol’s right to lay pipelines gas was not subject to the

“necessary, incident to or convenient for” clause

─ Repsol could transport gas over pipeline from distant production units located outside the leased acreage and outside non-neighboring lands



Practical pointers─ Be careful in drafting clauses addressing “enumerated”

rights and more general rights

─ The placement of commas is important

─ One option: • Add “in addition to the aforementioned rights . . .”



Practical pointers“Drilling, producing, and otherwise operating for oil and gas and their constituents, including the right to conduct geophysical, seismic and other exploratory tests, and of laying pipe lines, and building tanks, roads, stations, and electric power lines, houses for valves, meters, regulators, and other appliances, and, in addition to the aforementioned rights, all other rights and privileges necessary, incident to or convenient for the operation of this land alone and cojointly with neighboring lands.”

─ This makes clear that the “other rights” are “in addition to” the enumerated rights and not a restriction on those rights.


Degrees of Fault

Thomas Warren


Apache Corporation v. Castex Offshore Inc et al., case number 14-19-00605-cv, in the Fourteenth Court of Appeals of Texas

Degrees of Fault

78

─ Facts:• Apache and Castex co-owned leases

covered by several Joint Operating Agreements (“JOAs”). As is common in the oil and gas industry, these JOAs limited liability except for gross negligence and willful misconduct.

• Apache sued Castex for failing to pay its fair share of operating expenses under several of of the JOAs.

• Castex counterclaimed, alleging Apache breached two JOAs that related to a gas processing facility and gas drilling facility, and that such breaches were due to Apache’s willful misconduct.

Eversheds Sutherland PRIVILEGED AND CONFIDENTIALEversheds Sutherland 79

─ Issue:• No one is arguing that Apache did not breach the relevant JOAs –

the question is whether the breach was caused by “willful misconduct,” and what that phrase means.

Degrees of Fault


─ Selected Apache Misconduct Alleged:• Incompetent management at all levels, from the projects to senior

management.• Very little experience and relevant education – few managers

with engineering or construction backgrounds.• Mass layoffs of Apache managers.

• Fired for inexperience, violation of company policy.• Altered independent auditor’s reports of the projects.

• Deleted cost information and replaced it with Apache-drafted summary.

• Several engineering and construction errors.• Knew “cross flow” was occurring but did nothing to prevent it.

• Costs ballooning $40-50 million dollars• “I’m speechless. I don’t have any concept of how these costs

are so high.” – Regional Vice President

─ But was it “willful?”

Apache breached...but what caused it?


Arguments

Castex

•We only have to prove Apache acted with gross negligence or intention. Willful misconduct is not an intentional tort.

Apache•Castex has to prove we had “intent to cause harm.”


Castex Support Apache Support

Case law that distinguishes between intentional torts and misconduct. Willful misconduct cannot require the proof required of an intentional tort.

If “willful misconduct” meant “gross negligence” we would just say “gross negligence” -- “willful misconduct” would be superfluous.

If they meant the same thing, someone could be liable for conscious indifference to an extreme risk of harm, yet would be exonerated for deliberate, intentional, purposeful misconduct, which would make no sense.

Dictionary definitions of “willful” and “misconduct” that do not contemplate a specific intent to cause harm: Webster’s New World College Dictionary, Oxford American Writer’s Thesaurus, New Oxford American Dictionary.

Dictionary definitions of “willful” and “misconduct” that contemplate specific intent to cause harm: Webster’s

Ordinary meaning of willful misconduct does not include intent to cause harm

Ordinary meaning of willful misconduct does include intent to cause harm


Procedural History

83

─ Trial Court• A jury for the 133rd Judicial District Court found that Apache was

liable for breach of the JOAs by committing “willful misconduct” and was ordered to pay $74 MM to Castex for actual damages, attorneys’ fees, and interest.

• Apache appealed the decision to the Fourteenth Court of Appeals, where a decision is imminent.

Eversheds Sutherland PRIVILEGED AND CONFIDENTIAL

Practical Take-Aways

84

Do not assume that common law clearly defines terms. Know state law on key contract terms.

Courts rarely have a working knowledge of the industry that the parties have.

When in doubt, define terms, particularly if a preferred definition is not the plain meaning or common industry usage.

Even common concepts, like degrees of fault, require careful drafting to ensure practical outcomes.


Questions?

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James [email protected]

Thomas WarrenPartner+1.404.853.8548 [email protected]

lighting the way · 2021. 2. 25. · • lno sued the sellers for breach of contract • sellers...

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