BEAVER, PA – Energy Transfer co-founder Kelcy Warren, who is executive chairman of the company’s board of directors, told investors in a February 2019 call that the Dallas-based midstream company had “made some mistakes” on its projects in Pennsylvania.
Cardinal Midstream, also a Dallas-based company, wanted Warren to testify in its breach-of-contract trial against Energy Transfer in the Pittsburgh suburb of Beaver.
But Beaver County Court of Common Pleas Judge James J. Ross granted Energy Transfer’s motion to quash Kelcy’s appearance Monday afternoon, after the bench trial began that same day.
Reese Marketos partner Joel Reese, representing Cardinal Midstream, could not tell the judge whether Warren’s comments on the call specifically referred to the Revolution Pipeline that exploded in September 2018, destroying property and forcing nearby residents to evacuate.
“I’m not going to let this become a fishing expedition,” Judge Ross said.
Judge Ross will decide the breach-of-contract case brought by Cardinal Midstream because a contract between Energy Transfer and Cardinal Midstream included a jury trial waiver.
Cardinal Midstream says it’s entitled to $33 million under a purchase agreement. The agreement ensured a $55 million post-closing earnout payment if Cardinal Midstream’s affiliate PennEnergy Resources delivered an average volume of more than 200,000 cubic feet of natural gas per day during any consecutive 45-day period from Aug. 31, 2018, to March 31, 2019. The pipeline exploded on Sept. 10, 2018, making gas delivery impossible, Cardinal Midstream says.
PennEnergy settled with Energy Transfer earlier this year.
Energy Transfer, represented by Lynn Pinker Hurst & Schwegmann, says the explosion qualifies as a “force majeure” because heavy rains from Tropical Storm Gordon caused a landslide which ruptured the pipeline. But Cardinal Midstream argues poor design — not weather — is to blame.
Cardinal Midstream’s first witness, CEO Douglas E. Dormer Jr., testified more than eight hours over two days to start the trial. Lawyers on both sides spent much of his testimony interpreting the purchase agreement and a gathering agreement.
Energy Transfer also argues PennEnergy was not producing enough gas before the explosion to meet the condition for the earnout. But Cardinal Midstream said PennEnergy spent hundreds of millions of dollars on well development operations to ensure the condition could be met.
“Cardinal believes the gas was available,” Dormer said. “The resource was there. The wells were drilled.”
Judge Ross, in denying Energy Transfer’s motion for summary judgment, had previously found potential ambiguities existed in both the purchase agreement and a gathering agreement. He also decided a fact finder needed to determine whether Energy Transfer’s conduct prevented PennEnergy’s performance.
Last month, Lynn Pinker defended Energy Transfer in a three-week breach-of-contract and fraud trial in New York. Many of the fact issues in the two trials are the same, lawyers said.
The plaintiffs in the bench trial before Justice Joel M. Cohen of the New York Supreme Court are Delaware limited liability companies affiliated with investment funds managed by Goldman Sachs & Co. LLC and are represented by Wachtell Lipton Rosen & Katz. That trial was continued on Nov. 22 to Jan. 17, when closing arguments are scheduled.
Cardinal Midstream is also represented by Pete Marketos, Josh Russ, Adam Sanderson and Whitney Wendel of Reese Marketos and James Corbelli and Mark Dausch of Babst Calland.
Energy Transfer is represented by Chris Patton, Leo Park, Sara Chelette and Erin Elms-Nemec of Lynn Pinker Hurst & Schwegmann and John Gisleson of Morgan Lewis and Kenneth Cushing of Cozen O’Connor.
The Pennsylvania case number is 10523 of 2021. The New York case number is 652906/2019. Energy Transfer was represented in that trial by Mike Lynn, Andrés Correa, Clint Cowan, Shane Simms, Chloe Teeter and Chris Patton.