OOGC America, L.L.C. v. Chesapeake Exploration, L.

975 F.3d 449
CourtCourt of Appeals for the Fifth Circuit
DecidedSeptember 14, 2020
Docket19-20003
StatusPublished
Cited by13 cases

This text of 975 F.3d 449 (OOGC America, L.L.C. v. Chesapeake Exploration, L.) is published on Counsel Stack Legal Research, covering Court of Appeals for the Fifth Circuit primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
OOGC America, L.L.C. v. Chesapeake Exploration, L., 975 F.3d 449 (5th Cir. 2020).

Opinion

Case: 19-20002 Document: 00515563678 Page: 1 Date Filed: 09/14/2020

IN THE UNITED STATES COURT OF APPEALS FOR THE FIFTH CIRCUIT United States Court of Appeals Fifth Circuit

FILED No. 19-20002 September 14, 2020 Lyle W. Cayce Clerk OOGC AMERICA, L.L.C.,

Plaintiff – Appellee,

v.

CHESAPEAKE EXPLORATION, L.L.C.,

Defendant – Appellant.

--------------------------------------------------------------

Consolidated with 19-20003

OOGC AMERICA, L.L.C.,

Defendant;

D. PATRICK LONG,

Movant – Appellant.

Appeals from the United States District Court for the Southern District of Texas Case: 19-20002 Document: 00515563678 Page: 2 Date Filed: 09/14/2020

No. 19-20002 c/w No. 19-20003 Before ELROD, WILLETT, and OLDHAM, Circuit Judges. JENNIFER WALKER ELROD, Circuit Judge: This consolidated appeal concerns an arbitration dispute between two oil and gas companies, OOGC America, L.L.C. and Chesapeake Exploration, L.L.C. OOGC brought the lawsuit to vacate two arbitration awards favoring Chesapeake on the basis of an arbitrator’s failure to disclose connections with certain non-parties. The district court vacated the awards, and Chesapeake appeals. The arbitrator, Patrick Long, appeals the district court’s denial of his motion to intervene and also seeks leave to intervene on Chesapeake’s appeal in order to protect his reputational interest. We VACATE the district court’s arbitration ruling and REMAND the action with instructions to confirm the arbitration awards within thirty days of the issuance of the mandate. We AFFIRM the district court’s denial of Long’s motion to intervene and DENY AS MOOT his motion to intervene on appeal. I. Chesapeake is an Oklahoma LLC with headquarters in Oklahoma. OOGC is a Delaware LLC with its headquarters in Texas. In late 2010 and early 2011, Chesapeake sold OOGC partial interests in two oil and gas properties. Soon, a contract dispute arose out of two Development Agreements and a pair of accompanying Joint Operating Agreements (collectively, “the Agreements”) between the two that governed their joint venture. 1 The Agreements provided that Chesapeake, as the operator, would pay the expenses up front and then charge the expenses to a joint account. Then Chesapeake would bill OOGC for its proportionate share of the costs. The Agreements permitted Chesapeake to bill work performed by “affiliates” or “related parties” to the joint account, but required that such work must be

1 The two sets of agreements are functionally identical. 2 Case: 19-20002 Document: 00515563678 Page: 3 Date Filed: 09/14/2020

No. 19-20002 c/w No. 19-20003 compensated “at competitive rates that do not exceed the prevailing rates in the area.” The Agreements also established that any dispute would be resolved through arbitration and provided guidelines by which that arbitration would be conducted. One such guideline stated that an arbitrator must not have performed material work for affiliates within the preceding five years. Another required that the arbitration be conducted by a panel of three arbitrators in accordance with the American Arbitration Association (“AAA”) rules. In 2014, OOGC became concerned that Chesapeake was overbilling it by compensating affiliates and related parties at rates higher than the prevailing market rate and charging those expenses to the joint account. In early 2016, after the parties failed to reach an agreement on the matter, OOGC initiated arbitration, seeking damages of $185–210 million. OOGC’s arbitration demand pleaded two breach of contract claims. First, it claimed breach of Section 7.7 of the Agreements, which required quarterly reporting by Chesapeake on work done by Chesapeake’s affiliates. Second, it claimed breach of Article V.D.1 of an addendum to the Agreements, which governed market pricing and charges to the joint account. OOGC had the first chance to select an arbitrator and picked then-Locke Lord partner J. Robert Beatty. Chesapeake went next and picked Squire Patton Boggs partner D. Patrick Long. Beatty and Long together picked the third arbitrator and panel chairman, Wyoming litigator Donald I. Schultz. Each arbitrator supplied disclosures to the AAA, and neither party objected to any arbitrator. Long’s disclosures did not include mention of a non-party company called FTS. The arbitration schedule provided for four hearings, divided by topic. In the first hearing, the panel considered OOGC’s Section 7.7 claim, concluding that Chesapeake breached its reporting duties under that section. The panel 3 Case: 19-20002 Document: 00515563678 Page: 4 Date Filed: 09/14/2020

No. 19-20002 c/w No. 19-20003 also addressed the threshold question of whether FTS—one of the companies whose rates OOGC challenged—was a Chesapeake affiliate. The panel unanimously found that FTS was not a Chesapeake affiliate because FTS had never been under Chesapeake’s control. In the second and third hearings, the panel considered OOGC’s Article V.D.1 claim. OOGC argued that FTS was a “related party” under the Agreements, that the market rate requirement for related parties was identical to the requirement for affiliates, and that Chesapeake compensated FTS at rates higher than the market rate. The panel unanimously concluded that, even assuming arguendo that FTS was a related party and that the market rate requirements for affiliates and related parties were identical, the rates at which Chesapeake compensated FTS met the market rate requirement. Although the panel ruled for OOGC on several other issues, it ultimately concluded that Chesapeake did not overbill the joint account for work performed by its affiliates and related parties under Article V.D.1. About a month and a half later, OOGC filed an action in state court in Harris County, Texas, seeking to vacate the panel’s awards. Specifically, OOGC complained that Long had failed to disclose his relationship with Yon Siang Goh, chairman of FTS’s board of directors. Chesapeake removed the case to federal court on the basis of diversity of citizenship and asked the district court to affirm the awards. In February 2017, OOGC filed an “Amended Motion to Vacate Arbitration Awards.” In the motion, OOGC argued that the awards should be vacated because Long’s connections to FTS showed “evident partiality” under 9 U.S.C. § 10(a)(2) and “misbehavior by which the rights of a[] party have been prejudiced” under § 10(a)(3). In addition to his connections to Goh, OOGC alleged that Long had connections to Goh’s daughter Jolene and FTS’s general counsel Jennifer Keefe, both of whom had previously worked at Long’s law 4 Case: 19-20002 Document: 00515563678 Page: 5 Date Filed: 09/14/2020

No. 19-20002 c/w No. 19-20003 firm. The next day, the district court stayed the arbitration awards pending further proceedings. Meanwhile, with the fourth arbitration hearing looming, OOGC complained about Long to the AAA. In response, the AAA asked Long for additional disclosures about his connections to Goh and Keefe. Long disclosed that Keefe formerly worked at Squire Patton Boggs, that the two had worked on numerous cases together, and that they remained friends after she left to join FTS. Once at FTS, Keefe retained Long to represent the company in two oil and gas matters. Long also disclosed that he and Goh had been business partners until 2010. 2 The AAA concluded that Long should be removed from the panel. In lieu of appointing a new arbitrator, Chesapeake suggested that Shultz and Beatty simply proceed as a quorum, pursuant to AAA rules. Shultz and Beatty agreed. OOGC then asked the panel to postpone arbitrating the remaining claims pending resolution of their claims in the district court. The panel denied the motion.

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975 F.3d 449, Counsel Stack Legal Research, https://law.counselstack.com/opinion/oogc-america-llc-v-chesapeake-exploration-l-ca5-2020.