Justia Energy, Oil & Gas Law Opinion SummariesArticles Posted in Commercial Law
Petróleos de Venezuela S.A. v MUFG Union Bank, N.A.
In 2016, Venezuela's state-owned oil company, Petróleos de Venezuela S.A. (PDVSA), offered a bond swap whereby its noteholders could exchange unsecured notes due in 2017 for new, secured notes due in 2020. PDVSA defaulted in 2019, and the National Assembly of Venezuela passed a resolution declaring the bond swap a "national public contract" requiring its approval under Article 150 of the Venezuelan Constitution. PDVSA, along with its subsidiaries PDVSA Petróleo S.A. and PDV Holding, Inc., initiated a lawsuit seeking a judgment declaring the 2020 Notes and their governing documents "invalid, illegal, null, and void ab initio, and thus unenforceable." The case was taken to the United States Court of Appeals for the Second Circuit, which certified three questions to the New York Court of Appeals.The New York Court of Appeals, in answering the first question, ruled that Venezuelan law governs the validity of the notes under Uniform Commercial Code § 8-110 (a) (1), which encompasses plaintiffs' arguments concerning whether the issuance of the notes was duly authorized by the Venezuelan National Assembly under the Venezuelan Constitution. However, New York law governs the transaction in all other respects, including the consequences if a security was "issued with a defect going to its validity." Given the court's answer to the first certified question, it did not answer the remaining questions. View "Petróleos de Venezuela S.A. v MUFG Union Bank, N.A." on Justia Law
In re: SemCrude LP
SemGroup purchased oil from producers and resold it to downstream purchasers. It also traded financial options contracts for the right to buy or sell oil at a fixed price on a future date. At the end of the fiscal year preceding bankruptcy, SemGroup’s revenues were $13.2 billion. SemGroup’s operating companies purchased oil from thousands of wells in several states and from thousands of oil producers, including from Appellants, producers in Texas, Kansas, and Oklahoma. The producers took no actions to protect themselves in case 11 of SemGroup’s insolvency. The downstream purchasers did; in the case of default, they could set off the amount they owed SemGroup for oil by the amount SemGroup would owe them for the value of the outstanding futures trades. When SemGroup filed for bankruptcy, the downstream purchasers were paid in full while the oil producers were paid only in part. The producers argued that local laws gave them automatically perfected security interests or trust rights in the oil that ended up in the hands of the downstream purchasers. The Third Circuit affirmed summary judgment in favor of the downstream purchasers; parties who took precautions against insolvency do not act as insurers to those who took none. View "In re: SemCrude LP" on Justia Law
Energy Conversion Devices Liquidation Trust v. Trina Solar Ltd.
The defendant companies, based in China, produce conventional solar energy panels. Energy Conversion and other American manufacturers produce the newer thin-film panels. The Chinese producers sought greater market shares. They agreed to export more products to the U.S. and to sell them below cost. Several entities supported their endeavor. Suppliers provided discounts, a trade association facilitated cooperation, and the Chinese government provided below-cost financing. From 2008-2011, the average selling prices of their panels fell over 60%. American manufacturers consulted the Department of Commerce, which found that the Chinese firms had harmed American industry through illegal dumping and assessed substantial tariffs. The American manufacturers continued to suffer; more than 20 , including Energy Conversion, filed for bankruptcy or closed. Energy Conversion sued under the Sherman Act, 15 U.S.C. 1, and Michigan law, seeking $3 billion in treble damages, claiming that the Chinese companies had unlawfully conspired “to sell Chinese manufactured solar panels at unreasonably low or below cost prices . . . to destroy an American industry.” Because this allegation did not state that the Chinese companies could or would recoup their losses by charging monopoly prices after driving competitors from the field, the court dismissed the claim. The Sixth Circuit affirmed. Without such an allegation or any willingness to prove a reasonable prospect of recoupment, the court correctly rejected the claim. View "Energy Conversion Devices Liquidation Trust v. Trina Solar Ltd." on Justia Law
ConocoPhillips Alaska, Inc. v. Williams Alaska Petroleum, Inc.
Williams Alaska Petroleum owned and operated a refinery, which ConocoPhillips Alaska supplied with crude oil. ConocoPhillips demanded that Williams tender a payment of $31 million as adequate assurances of Williams’s ability to perform if an ongoing administrative rate-making process resulted in a large retroactive increase in payments that Williams would owe ConocoPhillips under the Exchange Agreement. ConocoPhillips offered to credit Williams with a certain rate of interest on that principal payment against a future retroactive invoice. Williams transferred the principal of $31 million but demanded, among other terms, credit corresponding to a higher rate of interest. Williams stated that acceptance and retention of the funds would constitute acceptance of all of its terms. ConocoPhillips received and retained the funds, rejecting only one particular term in Williams’s latest offer but remaining silent as to which rate of interest would apply. Years later, after the conclusion of the regulatory process, ConocoPhillips invoiced Williams retroactively pursuant to their agreement. ConocoPhillips credited Williams for the $31 million principal already paid as well as $5 million in interest calculated using the lower of the two interest rates. Williams sued ConocoPhillips, arguing that a contract had been formed for the higher rate of interest and that it was therefore owed a credit for $10 million in interest on the $31 million principal. The superior court initially ruled for Williams, concluding that a contract for the higher rate of interest had formed under the Uniform Commercial Code when ConocoPhillips retained the $31 million while rejecting one offered term but voiced no objection to Williams’s specified interest term. On reconsideration, the superior court again ruled for Williams, this time determining that a contract for the higher rate of interest had formed based on the behavior of the parties after negotiation under the UCC, or, in the alternative, that Williams was entitled to a credit for a different, third rate of interest in quantum meruit. The superior court also ruled in favor of Williams on all issues related to attorney’s fees and court costs. ConocoPhillips and Williams both appealed. Upon review, the Supreme Court concluded that the superior court was right the first time and that the parties entered into a contract for the higher rate of interest under the UCC.View "ConocoPhillips Alaska, Inc. v. Williams Alaska Petroleum, Inc." on Justia Law
Joseph v. Sasafrasnet, LLC
Sasafrasnet, an authorized distributor of BP products, provided Joseph with notice of its intent to terminate his franchise based on three occasions when Sasafrasnet attempted to debit Joseph’s bank account to pay for fuel deliveries but payment was denied for insufficient funds. The district court denied Joseph a preliminary injunction, finding that Joseph failed to meet his burden for a preliminary injunction under the Petroleum Marketing Practices Act 15 U.S.C. 2805(b)(2)(A)(ii). After a remand, the district court found that two of Joseph’s NSFs should count as “failures” under the PMPA justifying termination, at least for purposes of showing that he was not entitled to preliminary injunctive relief. The Seventh Circuit affirmed. Joseph’s bank account was not adequately funded for the debit on two occasions because Joseph had decided to change banks, circumstances entirely within Joseph’s control. Given Joseph’s history of making late payments in substantial amounts because of insufficient funds (each was more than $22,000), the delinquent payments were not “technical” or “unimportant.” View "Joseph v. Sasafrasnet, LLC" on Justia Law
Shell Oil Co. v. United States
Shell imported petroleum products, 1993-1994, upon which custom duties, taxes, and other fees were paid. During the same period, Shell exported drawback-eligible substitute finished petroleum derivatives. In 1995-1996, substitution drawback claims were filed with the U.S. Customs and Border Protection on Shell’s behalf. Generally, Customs provides a drawback of 99% of any duty, tax, or fee imposed under federal law upon entry or importation if the merchandise (or a commercially interchangeable substitute) is subsequently exported or destroyed under Customs supervision and not used within the U.S. before exportation or destruction, 19 U.S.C. 1313(j),(p). Drawback claims must be filed within three years of exportation. During the time of Shell’s imports, drawback eligibility of Harbor Maintenance Tax and Environmental Tax payments, which Shell now seeks, were heavily disputed. Shell was found not to have included an express request for HMT and ET in the “net claim” figure. In 1997, after the three-year period for the filing of drawback claims had expired Shell filed protests with Customs, seeking drawback as to HMT and ET payments. Customs denied Shell’s protests. The Court of International Trade found the claims time-barred. The Federal Circuit affirmed, holding that 1999 and 2004 statutory amendments did not change Shell’s position. View "Shell Oil Co. v. United States" on Justia Law
Joseph v. Sasafrasnet, LLC
Joseph purchased the BP franchise in 2006 for $400,000. In 2009, Sasafrasnet purchased BP’s interests in the land and a Dealer Lease and Supply Agreement, becoming lessor and franchisor. The DLSA authorizes Sasafrasnet to terminate if Joseph fails to make payment according to EFT policy, causing a draft to be dishonored as NSF more than once in 12 months; Sasafrasnet is not obligated to extend credit, but did deliver fuel before collecting payment. There were several instances of NSF EFTs; Sasafrasnet began to require payment in advance. Later, Sasafrasnet allowed Joseph to resume paying by EFT within three days of delivery, but established a $2,500 penalty for any NSF and stated that pre-pay would resume if he incurred two more NSFs. There were additional NSFs, so that Joseph had incurred nine for amounts over $20,000 and three for amounts over $45,000. Sasafrasnet gave Joseph 90 days’ notice that it was terminating his franchise, listing the NSFs and failing scores on a mystery shopper inspection as bases for termination. Joseph sued under the Petroleum Marketing Practices Act, 15 U.S.C. 2801. The district court denied a preliminary injunction to prevent the termination. The Seventh Circuit reversed, holding that the statute requires additional findings.View "Joseph v. Sasafrasnet, LLC" on Justia Law
Smith, et al. v. David H. Arrington Oil & Gas, Inc.; Foster, Jr., et al. v. Arrington Oil & Gas, Inc.; Hall, et al. v. Arrington Oil & Gas, Inc.
In this consolidated appeal, three sets of landowners asserted claims against Arrington for breach of contract, promissory estoppel, and unjust enrichment relating to Arrington's failure to pay cash bonuses under oil and gas leases. The district court granted summary judgment to the landowners on the breach of contract claims and thereafter dismissed the landowners' other claims with prejudice on the landowners' motions. The court rejected the landowners' assertion that the lease agreements could be construed without considering the language of the bank drafts; the drafts' no-liability clause did not prevent enforcement of the lease agreements; Arrington entered into a binding contract with each respective landowner despite the drafts' no-liability clause; the lease approval language of the drafts was satisfied by Arrington's acceptance of the lease agreements in exchange for the signed bank drafts and as such, did not bar enforcement of the contracts; Arrington's admitted renunciation of the lease agreement for reasons unrelated to title precluded its defense to the enforceability of its contracts; Arrington's admission that it decided to dishonor all lease agreements in Phillips County for unrelated business reasons entitled the landowners to summary judgment; there was no genuine issue of material fact as to whether Arrington disapproved of the landowner's titles in good faith. Accordingly, the district court did not err in granting summary judgment on the breach of contract claims. View "Smith, et al. v. David H. Arrington Oil & Gas, Inc.; Foster, Jr., et al. v. Arrington Oil & Gas, Inc.; Hall, et al. v. Arrington Oil & Gas, Inc." on Justia Law
BPI Energy Holdings, Inc. v. IEC (Montgomery), LLC
Plaintiffs are producers of coal bed methane gas; defendant is large coal-mining company. Gas extraction firms need access to coal from which to extract gas and coal companies need to have gas removed from their mines before mining. To form an alliance for that purpose, plaintiff began by acquiring options to buy coal-mining rights; it planned to sell the options in exchange for the right to extract gas from its partner's coal. The parties signed memorandum of understanding, which stated that it did not constitute a binding agreement, and, later, a non-binding letter of intent. Plaintiff began transferring coal rights to defendant as contemplated by the letter of intent, but defendant delayed reciprocating. Ultimately defendant announced that it was terminating the letter of intent. The trial court entered summary judgment for defendant on a fraud claim. The Seventh Circuit affirmed, stating that "when a document says it isn't a contract, it isn't a contract" and that plaintiff did not establish promissory fraud or justifiable reliance.View "BPI Energy Holdings, Inc. v. IEC (Montgomery), LLC" on Justia Law
Black Warrior Minerals, Inc. v. Fay
Black Warrior Minerals, Inc. sued Empire Coal Sales, Inc. and John Fay, Jr. Black Warrior sought money allegedly owed pursuant to a coal-purchase agreement between Black Warrior and Empire and a personal guaranty executed by Mr. Fay. A trial court entered summary judgment in favor of Black Warrior, awarding it damages plus attorney fees and costs. The trial court held a bench trial on the breach-of-guaranty claim against Mr. Fay, entering judgment in favor of Mr. Fay. Black Warrior appealed the latter, arguing that the trial court erred in finding the language of the guaranty was ambiguous and applied only to amounts in excess of $1.2 million owed by Empire to Black Warrior. Upon review of the language of the guaranty and the applicable legal authority, the Supreme Court concluded the trial court erred in its interpretation of the guaranty's terms. The Court reversed the lower court's judgment and remanded the case for further proceedings. View "Black Warrior Minerals, Inc. v. Fay" on Justia Law