At a glance: energy disputes procedure in USA

Commercial/civil law – procedural

How do courts in your jurisdiction resolve competing clauses in multiple contracts relating to a single transaction, lease, licence or concession, with respect to choice of forum, choice of law or mode of dispute resolution?

US courts look to the reasonableness of the venue when comparing conflicting choice-of-forum clauses. Jurisdiction must be met for the specified venues, and then the court considers whether the venue selected by the plaintiff is reasonable, based on factors such as costs, witness location and segregation of claims into multiple venues. Some jurisdictions, such as Texas, follow the ‘dominant jurisdiction doctrine’, which applies when a suit involving identical subject matter is filed in different courts. The court where the suit was first filed retains the dominant jurisdiction.

If a conflict between choice-of-law provisions arises, courts generally apply the conflicts of law principles of the forum court. Still, the false conflict doctrine allows for a court to avoid the choice-of-law inquiry where the laws of the involved states would result in the same decision. Some jurisdictions require that the presumptive local law apply, whereas others apply the law of the interested state.

When the mode of dispute is at issue, courts examine provisions regarding alternative dispute resolution. If language is broad enough to encompass the issue in dispute, the courts will generally find that the clause is enforceable.

If an arbitration clause conflicts with the applicable forum laws, a court may invalidate an arbitration provision that allows for arbitration in another state when the contract performance occurred in the forum state. See Keystone v Triad Sys Corp (holding that California arbitration provision violated public policy because Montana had greater interest in dispute); but compare Cahill v Alt Wines, Inc; Allen v World Inspection Network Int’l, Inc. (holding that the Federal Arbitration Act pre-empted state legislation, nullifying certain choice-of-forum provisions).

When there is a conflict between agreements and their choice-of-law or choice-of-forum clauses, some jurisdictions follow the most recent contract if there is no language therein referencing the first contract. Other jurisdictions may rescind both contracts if there is a mutual mistake by the parties drafting the conflicting provisions. If the conflicting provisions can be defined by scope, the court may try to enforce the provision by the subject it covers, such as when one contract’s choice-of-law provision governs torts and the other’s applies to breach of contract.

Are stepped and split dispute clauses common? Are they enforceable under the law of your jurisdiction?

While both split and stepped-up dispute clauses are used in the United States, the stepped-up dispute clause is standard in energy disputes. A stepped-up dispute clause requires a single issue to travel through various steps, such as an internal company reporting system or mediation, prior to litigation. A split dispute resolution clause involves an agreement to have separate issues resolved through separate means; for instance, contracting parties may agree that a dispute arising from an event of default should be referred to arbitration and all other disputes subject to litigation.

These clauses are generally enforced when clear and drafted as a condition precedent to subsequent procedures in the dispute-solving scheme. These clauses will not likely be enforced if ambiguous, vague or used for delay.

How is expert evidence used in your courts? What are the rules on engagement and use of experts?

Federal Rule of Evidence 702 governs the admissibility of expert-witness testimony. A qualified expert may offer opinion testimony if it is reliable and relevant, meaning the testimony must be helpful, based on adequate data or facts, supported by trustworthy methods and principles and based on a reliable application of the methods and principles to the specific facts at issue.

The leading US Supreme Court case Daubert v Merrell Dow Pharmaceuticals, Inc places judges in the role of gatekeepers to determine whether expert evidence meets Rule 702 before testimony is introduced to a jury.

Federal Rule of Evidence 403 works in conjunction with Rule 702 to safeguard against evidence that is irrelevant, prejudicial, confusing or causes delay. This Rule may exclude expert evidence when the testimony falls within the common understanding of the jury, when expert testimony would complicate an issue or when the evidence is otherwise unduly prejudicial.

Conversely, state courts vary on the stringency of admitting expert testimony. The majority, including Texas and Oklahoma, follow Daubert. The minority follow a ‘general acceptance’ test from Frye v US. The Frye test sets a lower bar for expert-testimony admissibility, requiring that the expert witness’ methods are ‘generally accepted’ by the relevant scientific community. In practice, a jurisdiction following Frye may allow expert testimony based solely on the expert’s education, even regarding a specialised matter. A jurisdiction following Daubert would require more, such as experience in a specialist field, as well as the additional criteria discussed above.

For example, a court applying Daubert excluded testimony about the operation of a specialised computer program used to track well casing when an expert witness had years of experience in the field but no specialist knowledge about the program (see Express Energy Servs Operating v Hall Drilling). Conversely, under the same Daubert test, a court allowed expert testimony on an oil rig’s defective design when the expert was a licensed mechanical engineer with almost two decades of experience and worked with similar rigs (see Smith v Central Mine Equip). Notably, an expert may be qualified under Daubert to testify in one area and prohibited from addressing others, even within the same trial (see In re Laurel Valley Oil Co).

What interim and emergency relief may a court in your jurisdiction grant for energy disputes?

Writs of mandamus, interim orders, temporary restraining orders and injunctions are available options for interim and emergency relief. A writ of mandamus may be sought by a party before final judgment has been entered, when the party disagrees with the judge’s ruling regarding a matter of law. The party appeals to the appellate court to issue an order to correct the lower court judge’s decision; however, granting a writ of mandamus may be authorised only under exceptional circumstances. Temporary restraining orders, temporary injunctions and permanent injunctions prevent an entity or individual from acting (or omitting to act) in a certain manner for a designated period of time.

For example, an injunction can be used in some states to access another’s land or receive revenue payments while a mineral dispute is pending. See Cason v Chesapeake Operating; Genesis Producing Co v Smith Big Oil Corp. A writ of mandamus may be used in some states to request that an agency issue a drilling permit (see Devon Corp v Miller).

An emerging trend in energy disputes involves requests for emergency arbitration, which may be filed with the arbitral tribunal even before a request for arbitration is filed. This mechanism is sometimes used when there is a need for immediate interim relief for emergency situations, such as an interruption of gas supplies needed for energy creation or the withdrawal of a licence by the state.

What is the enforcement process for foreign judgments and foreign arbitral awards in energy disputes in your jurisdiction?

Foreign arbitral awards are governed by the New York Convention, also known as the Convention on the Recognition and Enforcement of Foreign Arbitral Awards. The enforcement of an arbitral award issued under the New York Convention is governed by the Federal Arbitration Act, and applies only to the signatories. Enforcement depends on reciprocity, requiring that the jurisdiction of the foreign arbitral award be a party to the New York Convention.

The United States also ratified the 2005 Hague Convention on Choice of Court Agreements in 2009, whose purpose is to promote security in international business transactions through the cooperation of enforcing foreign judgments and to unify jurisdictional rules on international transactions and enforce foreign judgments for those who have ratified the agreement.

Federal courts will follow state law in recognising and enforcing foreign judgments and awards. Thirty-two states, including Texas, Oklahoma and Pennsylvania, follow the Uniform Foreign Money-Judgments Recognition Act (UFMJRA), agreeing to enforce foreign money judgments. This enables enforcement by extending the Full Faith and Credit Clause of the US Constitution to specific foreign judgments protected under the UFMJRA.

Other states follow the Restatement (Third) of Foreign Relations of the US – as do states with foreign judgments that are not recognised under UFMJRA – which permits enforcement of foreign judgments that involve money, a person’s status or a property interest. Although only in a minority of states, reciprocity may play a factor in enforcement. Some courts require reciprocity between its court and the foreign jurisdiction where the judgment was issued.

To enforce a judgment or arbitral award, the party seeking enforcement must file in a court with proper jurisdiction. Typically, little evidence is required in support. The party bringing the action must present proof of a final foreign judgment against a US defendant, or a certified copy of the arbitration agreement and award for an arbitral award. A jury and trial are not required and resolution typically occurs within weeks or months.

Are there any arbitration institutions that specifically administer energy disputes in your jurisdiction?

There are no energy-specific arbitration institutions; however, there are several institutions – national, regional and local – that support US energy disputes. Notably, the American Arbitration Association, International Institute for Conflict Prevention and Resolution and JAMS provide administrative support structures to host mediation and arbitration. States that focus on energy have some energy-specific centres, such as the Center for American and International Law in Texas or the Houston Maritime Arbitrators Association, but most arbitration centres provide a wide array of mediators or arbitrators qualified in various fields.

Is there any general preference for litigation over arbitration or vice versa in the energy sector in your jurisdiction?

There is a mildly growing preference for domestic arbitration in the energy sector, rather than cross-border and international arbitration. Domestically, there is still a preference for litigation to solve energy disputes; however, some companies are trending towards arbitration with limited discovery because of its potential cost savings and faster resolutions. Obtaining an arbitrator experienced in energy-specific customs is preferable when resolving complex energy disputes that raise difficult technical questions.

Are statements made in settlement discussions (including mediation) confidential, discoverable or without prejudice?

Federal Rule of Evidence 408 governs compromise offers and negotiations. Settlement and negotiation discussions involving an offer or acceptance of an offer as an attempt to compromise over the claim are confidential, undiscoverable, inadmissible as evidence and otherwise without prejudice – except in criminal cases – if entered as evidence to prove the validity or amount of a claim in dispute, or to impeach a witness by a prior inconsistent statement or contradiction. A majority of states have enacted a similar rule regarding settlements and offers.

Confidentiality of mediation discussions is less clear. While some states such as California, Texas and Louisiana have enacted statutes to broadly protect communications in mediation, federal courts do not have a mediation-specific statute except Rule 408. This protection does not expand to discussions that may be used to prove bias or prejudice of a witness.

Are there any data protection, trade secret or other privacy issues for the purposes of e-disclosure/e-discovery in a proceeding?

The Uniform Trade Secrets Act provides remedies to help protect trade secrets and confidential data, including seismic data, well logs, fracture designs, and land and lease files. Courts may also grant a protective order for discovery proceedings, conduct in-camera hearings, seal the relevant records and require court approval before a party can disclose information regarding the trade secret. Such protections have been adopted by all but two states: New York and Massachusetts. They instead use a multi-factor common law test to define trade secrets.

What are the rules in your jurisdiction regarding attorney-client privilege and work product privileges?

The Federal Rules of Evidence, Federal Rules of Civil Procedure, federal and state common law, and American Bar Association Rules all govern the attorney–client and work product privileges.

Federal Rule of Evidence 502 provides that the attorney–client privilege is held by the client and protects confidential communications involving legal advice between the party and his or her attorney. Federal courts have held that the privilege can include communications between a client or a client’s representative and a lawyer or the lawyer’s representative as long as the other conditions for attorney–client privilege are fulfilled. In a business context when the business is the client, communication with employees may also be protected if it is clear the communication was for the primary purpose of securing legal advice. This privilege can be waived (eg, providing privileged information to a testifying expert witness or third parties not affiliated with the client).

Under Rule 502 and Federal Rule of Civil Procedure 26(b)(3), work-product privilege protects materials created in preparation for litigation, such as attorney-created documents and tangible items. The party claiming the privilege has an obligation to show the privileged information was prepared in preparation for anticipated discovery and litigation. The work-product privilege is waivable, including by disclosure to a non-party or by court order, when the requesting party shows a substantial need and undue hardship caused by its non-production. Unlike the attorney–client privilege, the ability to waive the work-product privilege belongs to the attorney.

Inadvertent disclosures of privileged material do not qualify as a waiver when the privilege holder reasonably tried to prevent disclosure and took reasonable measures to correct the disclosure. US courts are split on whether waiver requires the disclosure to be intentional and whether inadvertent disclosure waives the privilege for the single communication or the whole subject matter of that communication.

State courts have generally adopted similar rules to the above. For example, in In re ExxonMobil Corp, a Texas court held that Exxon had waived its attorney–client privilege over title-opinion documents when contract landmen from outside the company viewed title opinions drafted by in-house counsel, even though the landmen were subject to confidentiality agreements. Conversely, the court also found that the attorney–client privilege was not waived when in-house attorneys sent drafts of a unit operating agreement to employees to review that were intended to be distributed to outside parties. Instead, the court found that privilege was not waived because the documents were not actually distributed to persons outside the company, even though it was the ultimate intent.

Rule 1.6 of the American Bar Association’s Model Rules of Professional Conduct provides that an attorney will not share information regarding the representation of his or her client without consent or unless an exception applies, such as disclosure to prevent death, commission of a crime, or to establish a defence in a malpractice claim. Such protection also exists at the state level.

Must some energy disputes, as a matter of jurisdiction, first be heard before an administrative agency?

Federal agencies may have exclusive, primary or concurrent jurisdiction depending on the nature of the energy dispute. For example, the Federal Energy Regulatory Commission (FERC) has exclusive jurisdiction over the transmission of electric energy in interstate commerce and wholesale sales of electricity. For certain contractual disputes, such as breach of contract for failure to pay, FERC and a state court may have concurrent jurisdiction. If FERC’s regulatory expertise is necessary to interpret the contract to resolve the dispute, it may assert primary jurisdiction to resolve the dispute on the merits or issue an opinion interpreting the contract that may be used in the state court action. Other Federal agencies, including the Bureau of Land Management, Bureau of Indian Affairs, and United States Forest Service, have appellate procedures for agency decisions, and require that agency administrative remedies be exhausted prior to bringing suit in federal court.

Multiple federal agencies may have concurrent jurisdiction, such as the anti-manipulation authority shared by FERC and the US Commodity Futures Trading Commission (CFTC) over certain commodity trading. Unlike FERC’s administrative action, the CFTC can bring criminal and administrative actions against a violator. While the entities work to share information, both may investigate or initiate enforcement actions for the same conduct. For example, in US Commodity Futures Trading Commission v Amaranth Advisors, LLC, FERC and CFTC clashed over FERC’s jurisdiction to challenge the defendant’s activities in certain derivative markets. CFTC has exclusive jurisdiction to regulate trading of natural gas futures contracts, but FERC brought an administrative action based on the alleged effect the manipulative actions had on FERC-jurisdictional transactions. As recommended by the court, these agencies continue to work together to coordinate investigations and communicate information.