© 2015 The Texas Lawbook.
By Natalie Posgate
(Sept. 18) – A federal court in Minnesota has ordered an Indian conglomerate to pay Houston-based Great Lakes Gas Transmission $32.9 million for failing to pay Great Lakes for natural gas transmission services the parties had agreed to in a 15-year contract.
The win is significant for Great Lakes, an interstate natural gas pipeline company, not only because it filed its lawsuit against Mumbai-based Essar Steel Limited six years ago, but also because the case presented a precedential issue of federal jurisdiction based on interstate gas pipeline tariffs, said David Elrod, Great Lakes’ lead attorney.
“This case has been resolved after more than six years of attempts by the defendants to avoid the simple principle of honoring a written contract,” said Elrod, who practices in Dallas at Gruber Hurst Elrod Johansen Hail Shank.
Essar’s lead lawyer, Douglas Flaum of Paul Hastings in New York, did not immediately return a phone call for comment.
The dispute stems back to 2006, when Great Lakes and Minnesota Steel Industries (MSI) entered a transportation service agreement contract that would facilitate MSI in accumulating the natural gas needed to develop a steel facility. Great Lakes agreed to transport up to 55,000 dekatherms of gas per day from Manitoba, Canada to Carlton, Minnesota from July 1, 2009 to March 31, 2024. In exchange, MSI agreed to pay $190,190 per month (which also included an interstate tariff).
Due to funding issues for the project, MSI sold itself to Essar in 2007. Great Lakes sued Essar in October 2009 after Essar failed to make its first monthly payment. Essar argued in a court document that it informed Great Lakes in early 2009 that its steel facility project would be postponed due to the global financial crisis, and subsequently tried to negotiate a delayed start date of the contract, but attempts were unsuccessful.
Elrod said Essar used the financial crisis as a defense to excuse itself from the breach of contract, but U.S. District Judge Susan Richard Nelson denied that defense and others Essar presented. Jurors were left to determine the appropriate discount rate for Great Lakes’ future damages, and decided in a three-day jury trial this August that it should be 4.3 percent. The 4.3 percent rate contributed to the calculations for Judge Nelson’s Wednesday judgment of $32.9 million.
Elrod said the trial, which took place in Duluth, Minnesota, was originally set for fall 2014, but got delayed after Essar raised the issue “on the eve of trial” of whether Judge Nelson’s court held federal jurisdiction over the case. Essar argued that because the contract involved a Federal Energy Regulatory Commission tariff, the FERC should have had jurisdiction over the case.
Both Judge Nelson and the FERC disagreed, and the litigation commenced in Judge Nelson’s court.
“Given the issues involved and the size of this judgment, the case offers important precedents for determining an appropriate discount rate in future litigation involving long-term contracts, as well as federal court jurisdiction,” Elrod said.
Elrod tried the case with Gruber Hurst Elrod colleagues Worthy Walker and Hayley Ellison.
In addition to Flaum, Essar’s trial team included Paul Hastings colleague Shahzeb Lari as well as Tom Thibodeau and David Johnson of Thibodeau, Johnson & Feriancek in Duluth.
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