Gulf LNG Energy, LLC v. Eni U.S. Gas Mktg. LLC

242 A.3d 575

GULF LNG ENERGY, LLC and Gulf LNG Pipeline, LLC, Plaintiffs Below, Appellants,

v.ENI USA GAS MARKETING LLC, Defendant Below, Appellee.

No. 22, 2020

Supreme Court of Delaware.

Submitted: September 9, 2020

Decided: November 17, 2020

Bradley R. Aronstam, Esquire, S. Michael Sirkin, Esquire, and R. Garrett Rice, Esquire, ROSS ARONSTAM & MORITZ LLP, Wilmington, Delaware; Joseph S. Allerhand, Esquire (argued), Seth Goodchild, Esquire, and Tania C. Matsuoka, Esquire, WEIL, GOTSHAL & MANGES LLP, New York, New York; Mark W. Friedman, Esquire, William H. Taft V, Esquire, Carl Micarelli, Esquire, and Lisa Wang Lachowicz, Esquire, DEBEVOISE & PLIMPTON LLP, New York, New York; Attorneys for Plaintiffs-Appellants Gulf LNG Energy, LLC and Gulf LNG Pipeline, LLC.

Joseph B. Cicero, Esquire, and Gregory E. Stuhlman, Esquire, CHIPMAN BROWN CICERO & COLE, LLP, Wilmington, Delaware; Joseph J. LoBue, Esquire (argued), and Helene Gogadze, Esquire, SHEPPARD, MULLIN, RICHTER & HAMPTON LLP, Washington, D.C., Attorneys for Defendant-Appellee Eni USA Gas Marketing LLC.

Before SEITZ, Chief Justice; VALIHURA, VAUGHN, TRAYNOR and MONTGOMERY-REEVES, Justices, constituting the Court en Banc.

SEITZ, Chief Justice, for the Majority:

In this appeal and cross-appeal, we address two primary issues arising out of a commercial agreement between the parties—first, whether the Court of Chancery had jurisdiction to enjoin a second arbitration that collaterally attacks a prior arbitration award; and second, whether the second arbitration in fact collaterally attacked the prior arbitration award.

We agree with the Court of Chancery that it had jurisdiction to enjoin a collateral attack on a prior arbitration award. The parties agreed that the Federal Arbitration Act ("FAA") governed their dispute. Under the FAA, the courts have the exclusive power to review and enforce arbitration awards. A party cannot escape the FAA's time-limited and exclusive review procedure by filing a follow-on arbitration attacking the outcome of the prior arbitration.

On the second issue, we affirm in part and reverse in part the court's ruling that some claims but not others in the second arbitration collaterally attacked the award in the prior arbitration. A collateral attack on the first award does not depend on the res judicata or collateral estoppel effect of claims raised or decided in the prior arbitration. Rather, the question is whether the claimant alleges irregularities in the prior arbitration or seeks to rectify the harm it suffered—issues that could have been reviewed through the FAA post-award procedure. The Court of Chancery should have enjoined all claims in the second arbitration between the parties because the admitted goal of the follow-on arbitration was to raise irregularities and revisit the financial award in the first arbitration. Thus, we affirm in part and reverse in part the Court of Chancery's judgment.

I.

A.

Gulf LNG Energy, LLC, a Delaware limited liability company, owns and operates a liquefied natural gas ("LNG") terminal in Mississippi (the "Pascagoula Facility" or "Facility").¹ The Facility unloads vessel-imported LNG into the United States. Gulf LNG Pipeline, LLC (collectively with Gulf LNG Energy, LLC, "Gulf"), also a Delaware entity, owns and operates a five-mile long pipeline that distributes LNG from the Pascagoula Facility to downstream inland pipelines. Eni USA Gas Marketing LLC ("Eni"), a Delaware entity, markets natural gas products and offers related services in the United States.²

On December 8, 2007, Gulf and Eni entered into a Terminal Use Agreement (the "TUA"), whereby Gulf would construct the Pascagoula Facility, and Eni would use the Facility to receive, store, regasify, and deliver imported LNG to downstream businesses.³ Under the TUA, Eni agreed to pay Gulf fees for using the Facility, including monthly Reservation Fees and Operating Fees. The following TUA Articles are relevant to the dispute:

Article 22.4(a) – Gulf covenanted to "observe and comply with [Article 22.2(f)] in all respects;"⁴

Article 22.2(f) – Gulf's "Constitutive Documents" will contain provisions that "limit[ ] [Gulf's] purpose and object to the ownership, design, financing, construction, equipping, testing, commissioning, operation, maintenance, repair, decommissioning and removal of the [Pascagoula] Facility ..."⁵

Article 22.4(e) – Gulf is entitled to "reasonable consideration" for "all transactions" with an Affiliate;⁶

Article 18.1(a)(vi) – Eni can terminate the TUA early if Gulf fails to perform obligations under Article 22.4(a) or 22.4(e) for a period of more than fifteen consecutive days;⁷

Article 20.1(a) – the parties agreed that "[a]ny Dispute ... shall be exclusively and definitively resolved through final and binding arbitration, it being the intention of the Parties that this is a broad form arbitration agreement designed to encompass all possible disputes."⁸ "Dispute" is defined as "any dispute, controversy or claim (of any and every kind or type, whether based on contract, tort, statute, regulation, or otherwise) arising out of, relating to, or connected with this Agreement, including ... any dispute over arbitrability or jurisdiction"⁹ and

Articles § 20.1(h), (o) – arbitral awards "shall be final and binding"¹⁰ and the parties "waive any right to appeal from or challenge any arbitral decision or award, or to oppose enforcement of any such decision or award before a court or any governmental authority, except with respect to the limited grounds for modification or non-enforcement provided by any applicable arbitration statute or treaty"—in this case the Federal Arbitration Act.¹¹

On March 2, 2016, Eni filed for arbitration (the "First Arbitration") with the American Arbitration Association, International Centre for Dispute Resolution ("ICDR"). In its arbitration demand, Eni alleged that the United States’ natural gas market had undergone a "radical change" due to "unforeseen, vast new production and supply of shale gas in the United States [that] made import of LNG into the United States economically irrational and unsustainable."¹² As Eni alleged in support of declaratory relief, (i) the essential purpose of the TUA had been frustrated and thus terminated because of "fundamental and unforeseeable change in the United States natural gas/LNG market," and (ii) a declaration that Eni could terminate the TUA at any time under Article 18.1 because Gulf breached warranties and covenants "in at least Articles 22.4(a) and 22.4(e)."¹³ Specifically, Eni contended that Gulf violated Article 22.4(a) of the TUA by filing an application to modify the pipeline to "accommodate the planned liquefaction and export activities," contrary to Article 22.4(a)’s representation that Gulf's "purpose and object" was limited "strictly to importation and regasification of LNG."¹⁴

On June 29, 2018, the arbitration tribunal (the "First Tribunal") issued its Final Award, finding that "the principal purpose of the TUA has been substantially frustrated" and declaring the TUA terminated as of March 1, 2016.¹⁵ The First Tribunal ordered Eni to pay Gulf $462,199,000 as "just compensation ... for the value that their partial performance of the TUA conferred upon Eni."¹⁶ In language we will consider in more detail later in this opinion, the arbitrators also stated that Eni's breach of contract claim against Gulf was rendered "academic and deserves no further consideration" in light of their frustration of purpose finding.¹⁷

B.

On September 28, 2018, Gulf sued Eni S.p.A.—Eni's indirect parent company—in New York state court under the guarantee agreement between Gulf and Eni S.p.A. (the "Guarantee Agreement"). Gulf argued that Eni S.p.A. owed "as much as approximately $900,000,000 in guaranteed obligations" for Reservation and Operating Fees for the Pascagoula Facility running from the date of the First Arbitration's Final Award until the end of the TUA's twenty-year term.¹⁸ In the New York litigation, Gulf claimed that, in the Guarantee Agreement, Eni S.p.A. "specifically waived, ‘to the extent permitted by law, any release, discharge, reduction or limitation of or with respect to any sums owing by [Eni] or other liability of [Eni] to [Gulf].’ "¹⁹

On December 12, 2018, Eni S.p.A. filed its answer and three counterclaims, alleging that the Guarantee Agreement was terminated by Gulf's "numerous and widespread breaches of the TUA and related agreements."²⁰ Eni S.p.A. argued that Gulf's breaches of Article 22 of the TUA "caused [Eni] substantial injury for which Eni S.p.A. seeks damages and other relief."²¹

Around the time that Gulf initiated the New York litigation, Gulf brought suit in the Delaware Court of Chancery seeking to confirm the Final Award. Eni filed an answer and asserted a counterclaim asking the Court of Chancery to enter judgment in Eni's favor by "confirming the Final Award in its entirety."²² Gulf and Eni each moved for judgment on the pleadings. On February 1, 2019, the court entered a final judgment confirming the arbitration award in favor of Gulf against Eni for $371,577,849.²³

C.

On June 3, 2019, following confirmation of the First Award, Eni filed a second notice of arbitration (the "Second Arbitration"). Eni asserted two counts for declaratory relief and damages for Gulf's alleged breach of the TUA "by engaging in LNG liquefaction- and export-related activities in direct contravention of the express terms of at least Articles 22.4(a) and 22.4(e) of the TUA" and a third claim for negligent misrepresentation seeking "declaratory and other relief, in the form of damages and/or restitution ... as a result of Gulf's wrongful conduct" before the First Tribunal.²⁴ On June 17, 2019, Gulf responded with this action in the Court of Chancery under the FAA and 10 Del. C. §§ 5702, 5703(b), seeking (i) a permanent injunction staying the Second Arbitration and (ii) a "declaratory judgment that Eni ... is barred from maintaining or pursuing the Second Arbitration."²⁵

Gulf...