An appellate court ruled Thursday that the arbitrability of a legal dispute between Houston-based Apache Corp. and Fort Worth-based Wagner Oil Company will have to be debated in front of an arbitrator in Houston, not a trial court in Fort Worth as WOC had hoped.
The ruling marks a win for Houston lawyer Tim Shelby and a team of attorneys at AZA, who are eager to pick up the matter before a Houston arbitrator to resolve a $15 million dispute.
“The Wagner respondents have done everything possible to get out of this arbitration, and we want to hold their feet to the fire and get to trial as soon as possible.”
Shelby explained that the arbitration provision requires a tight timeline; it mandates the final hearing to be held within 30 days of the first scheduling hearing.
Marshall Searcy of Kelly Hart & Hallman, who represents WOC and its CEO, Bryan Wagner, said his clients “respectfully disagree” with the ruling and “probably are going to move for rehearing.”
The appellate battle in the Texas Second Court of Appeals in Fort Worth was an interlocutory appeal that stemmed from a larger chunk of environmental litigation involving five lawsuits that were filed against Apache in Louisiana.
Known as “legacy litigation,” the claims entailed properties that the plaintiffs alleged needed environmental cleanup that were once owned by Apache. Since this kind of litigation, which surfaced after legislation changes in Louisiana in the early 2000s, requires no statute of limitations, it names essentially any oil company that was previously an owner or operator of the property at issue. As a result, Apache, WOC and many other oil companies were named as defendants.
According to the court of appeals opinion, Apache spent $15 million litigating those disputes, which involved oil and gas assets that Apache sold to WOC in 2001 for $25 million.
In their purchase and sale agreement (PSA), the parties, as Apache argues, required WOC to take the assets “as is” and indemnify Apache from any environmental liability.
Their PSA also included an arbitration clause that states any disputes arising out of the agreement shall be “resolved by arbitration in Houston.”
So when Apache filed a demand for arbitration against Wagner in November 2017 seeking reimbursement for Apache’s $15 million legal fees from the Louisiana litigation, WOC filed a declaratory judgment action in Tarrant County alleging the PSA’s arbitration clause did not apply in this unique situation. WOC argued, among other things, that the mandatory arbitration did not apply to a claim for defense and indemnity arising from a third-party lawsuit against either Apache or Wagner.
In response, Apache filed a motion to transfer the Tarrant County case to Harris County and
A motion to abate and compel arbitration.
After a March 22, 2018 hearing, the Tarrant County court sided with WOC, granting a stay of the arbitration.
Apache appealed, arguing that the disputed third party (“carve-out”) portion of the clause only allowed arbitration to be avoided if a third party filed a lawsuit related to the assets and the Wagner parties filed third party cross-claims against Apache in the same third-party action.
In a 24-page decision, a three-judge panel sided with Apache and tossed the trial court’s decision to stay the arbitration and remanded the case to the trial court to compel arbitration pursuant to the parties’ agreement.
“Considering both the language of the carve-out and the rest of the PSA to provide context for the arbitration clause, we read the carve-out as limited to cross-claims within a third-party action,” the decision, written by Second Court of Appeals Chief Justice Bonnie Sudderth says.
“Accordingly, we conclude that the trial court abused its discretion by denying Apache’s motion to compel arbitration and sustain Apache’s first issue.”
The court of appeals panel also included justices Bill Meier and Lee Gabriel.
Shelby serves as Apache’s lead lawyer at the trial level, while Searcy serves as Waggoner’s lead lawyer. AZA of counsel Jane Langdell Robinson led the appeal for Apache, while Kelly Hart partner David Kelton led the appeal for WOC and Mr. Wagner.
The AZA team also includes associates Foster Johnson and Nathan Campbell. The Kelly Hart team also includes associate Scott Wiehle.