Houston Appeals Court Compels Gas Delivery Dispute to Arbitration

Houston’s First Appellate District has compelled a dispute over a natural gas delivery contract to arbitration despite that arbitration was not expressly required under the parties’ agreement because the dispute could not be decided without considering another contract that required arbitration. In Enterprise Field Services, LLC v. TOC-Rocky Mountain, Inc., No. 01-12-00345-CV (Tex. App. 1^st February 28, 2013), the predecessor companies to Enterprise Field Services, LLC (“Enterprise”), TOC-Rocky Mountain, Inc. (“TOC”), and ConocoPhillips (“Conoco”) entered into an agreement (“Straddle Agreement”) regarding the collection and processing of natural gas in New Mexico’s San Juan Basin in 1984. In 2006, Enterprise and BP America Production Company (“BP”), TOC’s parent company, entered into a separate long-term natural gas gathering agreement that contained an arbitration clause.

After a dispute regarding natural gas collection arose between Enterprise and Conoco, Enterprise filed a lawsuit seeking a declaratory judgment. TOC was joined in the litigation because the company was a party to the initial 1984 agreement. TOC then filed a counterclaim against Enterprise seeking a declaratory judgment against Enterprise and damages for breach of contract.

Not long after the lawsuit was filed, Enterprise settled the company’s dispute with Conoco and filed a motion to compel TOC’s counterclaims to arbitration because TOC allegedly sought a declaration of the company’s rights under the 2006 agreement. The trial court allowed TOC to amend the company’s counterclaim to exclude any reference to the 2006 agreement. The trial court then denied Enterprise’s motion to compel arbitration and Enterprise filed an interlocutory appeal with Houston’s First District.

On appeal, Enterprise argued that the trial court committed error when it determined TOC’s amended counterclaim was not subject to arbitration pursuant to the parties’ 2006 agreement. The appeals court stated,

Enterprise argues, and we agree, that the 2006 Gathering Agreement is part of the parties’ course of dealing and its terms would necessarily be considered in any litigation involving construction of, and performance under, the Straddle Agreement. TOC’s counterclaim is based on the argument that Enterprise was obligated to continue allocating NGLs in accordance with the provisions of Exhibit B of the Straddle Agreement, while the Gathering Agreement contains terms indicating that the parties desired to adopt a new, different method of calculating NGLs, although they had not done so at the time the Gathering Agreement was signed.

The court continued,

We express no opinion as to the merit of Enterprise’s positions regarding construction, and possible modifications of the Straddle Agreement by the later Gathering Agreement, but agree that claims for a breach of performance under the Straddle Agreement will necessarily involve the interpretation of provisions of the Gathering Agreement, and specifically, the interpretation of section 9.6 of the Agreement.

As such, the trial court erred in concluding that TOC’s counterclaims did not fall within the scope of the arbitration agreement in the 2006 Gathering Agreement.

Next, the appellate court dismissed TOC’s argument that the company was not bound by the 2006 agreement because it was signed by BP. According to the court,

In its First Amended Original Counterclaim, TOC refers to itself at “BP.” It has never complained, either in its pleadings or elsewhere, that it is not bound by the terms of the Gathering Agreement. Thus, it may not now do so before this Court.

The First District then dismissed TOC’s claim that Enterprise waived arbitration by invoking the judicial process. The appeals court stated,

There is a strong presumption against finding that a party has waived its right to arbitration; the burden to prove waiver is thus a heavy one. In re Bank One, N.A., 216 S.W.3d 825, 827 (Tex. 2007); In re D. Wilson Const. Co., 196 S.W.3d at 782. Any doubts regarding waiver are resolved in favor of arbitration.

The Houston court continued,

When Enterprise filed the present suit, its initial claims were against Conoco and did not involve TOC’s 2006 Gathering Agreement at all. Once Enterprise added TOC to the suit, and TOC filed its counterclaims, Enterprise promptly moved to compel arbitration under the 2006 Gathering Agreement. Discovery in this case has been minimal and the case has been stayed for most of its duration. Enterprise has not sought judgment on the merits.

Finally, the First District held that the trial court committed error when it found that Enterprise waived its right to arbitration. Texas’ First District held,

Because TOC’s counterclaims are within the scope of the arbitration agreement and Enterprise did not waive arbitration, we hold that the trial court erred by denying Enterprise’s Motion to Compel Arbitration. Accordingly, we reverse the trial court’s order and remand for further proceedings compelling arbitration.