Zachry Industries, Chiyoda International and other members of a joint venture have been freed from litigation stemming from an explosion at a liquified natural gas facility in which Freeport LNG’s insurers were seeking $1.3 billion in damages.
In a ruling issued Wednesday, U.S. Bankruptcy Judge Marvin Isgur of the Southern District of Texas brought an end to two separate adversary proceedings brought by FLNG Liquefication and Allianz Global Risk in the wake of the June 2022 explosion at the Freeport LNG Liquefication and Export Terminal in Quintana, Texas.
Judge Isgur held a hearing on the motion to dismiss Monday. At that hearing, John Thomas of Hicks Thomas, who represents the Zachry entities, told the court the plain language of the agreement between the entities that contracted to build the multibillion-dollar “megaproject” requires dismissal of the adversary proceedings against his client.
“Imagine the situation of trying to get financing when you potentially face a long-term tail of billions of billions of dollars of potential consequential loss,” he argued. “You just couldn’t do these projects. These [engineering, procurement and construction] companies couldn’t do these projects, and companies like FLNG and Golden Pass would not have these very profitable facilities without these types of provisions that prevent a long-term liability tail following them for decades into the future.”
Chiyoda had argued in a motion to dismiss that the insurers were trying to get around clear provisions in the 146-page contract barring their recovery of damages.
“Faced with significant contractual bars to recovery of damages, however, the plaintiffs framed their sole cause of action as one for negligence,” Chiyoda told the court. “But Texas law bars this sleight-of-hand attempt to sidestep the EPC contract. Specifically, the economic-loss rule prevents plaintiffs from recasting true breach-of-contract claims as tort claims. Moreover, assuming the plaintiffs could properly allege negligence, they missed the applicable two-year statute of limitations.”
According to audio of the hearing available on the docket, Judge Isgur told counsel for the insurers about four minutes before he issued an oral ruling from the bench dismissing the subrogation that he wasn’t inclined to adopt his arguments.
“I’m not even following a little bit of your argument, just so you know,” he said. “It seems obvious that you’re wrong.”
Judge Isgur’s brief, two-page order came late Wednesday.
“This single order concerns the two adversary proceedings and the main case. The court recommends that any appellate court consolidate these matters for appeal,” he wrote. “The terms and conditions of this order are immediately effective and enforceable upon its entry. This court retains jurisdiction with respect to all matters arising from or related to the enforcement of this order.”
Allianz Global Risk is represented by Evan J. Malinowski of Denenberg Tuffley.
FLNG Liquefication is represented by Kenneth P. Green of Bonds Ellis Eppich Schafer Jones, Kevin Hood of Fabrega Hood and Thomas Zabel of Zabel Freeman.
Zachry is also represented by D. Ryan Cordell Jr., John Deis, Eric Grant, Cameron Pope and Sofia Burnett. of Hicks Thomas and Charles R. Koster of White & Case.
Chiyoda is represented by Charles M. Jones II, Kelli Norfleet, Charlie Beckham, Martha Wyrick, Brian Singleterry, Imaan Patel and Emily Buchanan of Haynes Boone.
The other members of the joint venture, PSRG Inc. and CB&I LLC, are represented by Marshall Rosenberg of Bush Ramirez and Matthew Rawlinson, Jack Massey and Stephanie Brown of Baker McKenzie, respectively.
The adversary proceeding case numbers are 24-03189 and 24-03190 in the U.S. Bankruptcy Court for the Southern District of Texas.