A judge in Beaver County, Pennsylvania, has determined that Cardinal Midstream is owed $51.9 million in damages from Energy Transfer in a lawsuit stemming from a 2018 gas pipeline explosion.
Cardinal filed suit in 2021, alleging that Dallas-based Energy Transfer’s negligent design and construction of a pipeline, combined with a landslide triggered by a tropical storm, caused the pipeline to explode. Cardinal had entered a purchase agreement with Energy Transfer that included an earnout provision entitling it to $55 million if its affiliate, PennEnergy Resources (which was not a party to this lawsuit), delivered a specified amount of gas for 45 consecutive days.
According to Cardinal, PennEnergy was “ready, willing and able” to provide the amount of gas required under the contract but alleged Energy Transfer’s negligence made delivery impossible. Cardinal had argued that under the terms of the agreement, it was entitled to 60 percent of the $55 million earnout payment, which comes to $33 million.
In a 70-page opinion and order issued Monday, Judge James J. Ross awarded Dallas-based Cardinal $33 million in damages and $18.9 million in prejudgment interest for Energy Transfer’s breach of the terms of contracts governing the joint venture. Judge Ross noted that Cardinal had requested payment under the earnout provision via email in December 2018.
“To the Court’s understanding no payment has ever been made,” he wrote. “Prejudgment interest at the simple rate of interest of 10% from the date of 180 days after the Dec. 11, 2018 demand, which would be June 9, 2019, through today (March 10, 2025) is $18,977,261.40.”
Counsel for Energy Transfer told The Lawbook on Tuesday they will be appealing the decision.
Joel Reese of Reese Marketos, who represented Cardinal, told The Lawbook Judge Ross, who presided over an 18-day bench trial that featured testimony from eight expert witnesses and more than 1,500 trial exhibits, was “very diligent” in his approach to the case.
“He examined and evaluated the testimony of all the witnesses at length,” Reese said. “If you read through the opinion, he’s very specific on the testimony he accepted, the testimony that he didn’t find credible and the testimony that he thought was impactful.”
Pete Marketos of Reese Marketos, who also represented Cardinal, said part of the difficulty in achieving the favorable verdict for his client was “untangling” Energy Transfer’s force majeure defense from the breach of contract issue.
“It became two separate cases,” he said.
“For the client, this was truly David versus Goliath,” Marketos said. “I think the way the opinion came out, hopefully it sets the tone for if somebody tells you it’s our way or the highway, we’ll take the highway if we have to. That’s what Energy Transfer was doing and we took the highway, and it might cause them to think twice the next time.”
Energy Transfer lodged two primary defenses: PennEnergy wasn’t capable of producing and providing the amount of gas required under the contract, and that it was 2018’s Tropical Storm Gordon, and not its negligence in constructing the pipeline, that caused the pipeline to rupture and explode.
Cardinal argued that because Energy Transfer took a “directly contrary position” to the argument that PennEnergy couldn’t provide the gas in related insurance coverage litigation in Delaware, it should be barred from making that argument in this case. Specifically, Energy Transfer used PennEnergy’s projections and forecasts related to its ability to deliver gas “to pursue and advance a lawsuit against insurance carriers in the state of Delaware pursuant to business interruption insurance policies.”
Judge Ross wrote that that litigation ended with the insurers paying a $71.5 million settlement to Energy Transfer, “thereby receiving a benefit by asserting a position that it now seeks to dispute.”
“Even though the Delaware case was not actually litigated to conclusion, or determined by a court, it can still serve as a basis for judicial estoppel,” he wrote. “Successfully obtaining a benefit is all that is required and that occurred for Energy Transfer in the Delaware litigation. Thus, Energy Transfer is precluded from arguing that PennEnergy would not have produced enough gas to meet the earnout requirement here.”
Judge Ross similarly dispatched Energy Transfer’s force majeure defense related to Tropical Storm Gordon.
“There is a major problem with defendants’ assertion under Texas law,” he wrote, explaining that under state law an act of God is defined as an accident “that is due directly and exclusively to natural causes without human intervention.”
“Here, the Court has already cited to and found a human created cause in the immediately preceding section, namely human negligence and error in constructing the pipeline,” Judge Ross wrote.
Energy Transfer’s expert report and investigation into the causes of the failure found “human intervention” as a cause, which the judge wrote “negates an ‘Act of God’ under Texas law.”
“Moreover, there can be concurring causes to such a situation and the Court has found that Energy Transfer’s construction inadequacies were a cause to this failure as contributed to by the storm,” he wrote. “Thus, under the law cited above the force majeure defense must fail.”
Judge Ross also noted that he found at least some of the testimony from Adam Arthur, vice president of crude oil for Energy Transfer, “suspect and concerning” and that he had “stonewalled” certain questions.
“The Court had to admonish Adam Arthur for not answering the questions asked,” Judge Ross wrote. “Collectively [Energy Transfer coordinator Kenneth] Squire, [Energy Transfer corporate designee, chief counsel and vice president Rhett] Metz and Arthur were in the Court’s eyes programmed witnesses who had standard or programmed answers when questioned on cross; whereas when called on direct by Energy Transfer their demeanor changed and they answered questions clearly and without hesitation.”
Cardinal Midstream is also represented by Josh Russ, Adam Sanderson and Whitney Wendel of Reese Marketos and James Corbelli and Mark Dausch of Babst Calland.
Energy Transfer is represented by Jason Dennis, Chris Patton, Leo Park, Sara Chelette and Erin Elms-Nemec of Lynn Pinker Hurst & Schwegmann and John Gisleson of Morgan Lewis & Bockius and Kenneth Cushing of Cozen O’Connor.
The case number is 10523 of 2021.